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Dive brief:
- What a difference a half point type reduction makes. Thanks in part to the Federal Reserve’s interest rate cut, The construction portfolio recovered in September after falling at the end of summer, according to an Oct. 15 analysis of recent government data by the Associated Builders and Contractors.
- The amount of work in builders’ pipelines was back to 8.6 months of runway, after falling to 8.2 in Augustalso increasing confidence in the sector. The job backlog increased in all regions in September except the Northeast. That said, most areas are still down for the year, with only the middle states lagging more than a year ago.
- “Contractors are again expecting a modest expansion in their margins from September,” Anirban Basu, ABC’s chief economist, said in a press release. “This optimism likely reflects falling interest rates, which will ultimately serve as a headwind for the industry, and the fact that materials prices have actually declined over the past year.”
Diving knowledge:
The positive boost was generally by company size, with companies making less than $30 million a year adding more work at a similar rate to those making $100 million or more in revenue. While contractors in the $30-50 million range remained the same, there was no decline.
Despite this positive rebound in both the job and contractor outlook, Basu noted that contractor confidence and backlogs are lower than a year ago, suggesting the effects of high interest rates continue to weigh on the sector .
Courtesy of Associated Builders and Contractors
Still, September’s rebound provides evidence that the sector may be moving deeper into the much-heralded “soft landing” that the Federal Reserve intended to keep interest rates high until its September 18 cut.
Prior to that, contractor profit margin expectations briefly dipped below the 50 mark, indicating an expected contraction in the space. With the latest bump, however, this metric has rebounded to 50.9, indicating that contractors see more expansion ahead.
