Dive brief:
- The construction portfolio stagnated in 8.4 months in July, when smaller contractors felt the brunt of the pain and builders’ profit confidence hit a near two-year low, according to a statement Tuesday from the Associated Builders and Contractors.
- Companies with annual revenue of less than $50 million reduced their level of lateness last month, according to a survey of ABC members. According to the report, only the largest contractors, those with more than $100 million in annual revenue, have longer portfolios than this time last year. This combination altered the contractors’ prospects for making money in the future.
- “Contractor confidence around profit margins is now at its lowest level since November 2022, which is not a surprise,” said Anirban Basu, ABC’s chief economist. “There are now strong indications that this high interest rates have ultimately taken their toll on various segments of privately financed construction, as well as the wider economy.”
Diving knowledge:
While larger contractors have managed to secure longer delays and manage through headwinds, smaller firms are increasingly feel the pinchBasu said.
ABC’s construction confidence index readings for sales, profit margins and staffing levels eased in July but remain positive, albeit just barely, the report said.
With a score above 50 indicating that builders expect growth, July’s profit margin score of 50.6 means the outlook is slightly above water and down from 55 a year ago . This decline in confidence reflects growing concerns about profitability as contractors struggle rising costs and uncertain economic conditions.
Lasting high prices of construction materialswhich are still nearly 40% above pre-pandemic levels despite the reduction in inflation, continue to drag down industry activity, according to ABC. For this reason, Basu said the The Federal Reserve is highly anticipated Lower interest rates are now assured and should help spur renewed construction spending.
“With construction spending down over the past two months, the industry is looking forward to lower interest rates,” Basu said in the statement. “Given the recent economic turmoil, the Federal Reserve will begin cutting rates at its September meeting.”
