Dive brief:
- The construction backlog shrank to 8.1 months in February due to excess inflation and high interest ratesaccording to a statement Tuesday from Associated Builders and Contractors.
- The group’s Construction delay indicator fell 0.3 months from the January reading and remains 1.1 months behind February 2023.
- The backlog fell in February for all contractor sizes except those with less than $30 million in annual revenue. Over the past year, the largest contractors, those with more than $50 million in revenue, have seen the largest portfolio declines, according to ABC.
Diving knowledge:
Despite the fall in backlog levels, ABC’s construction confidence index reading for sales, profit margins and staffing levels indicate expectations for growth over the next six months.
However, each of these readings has recently begun to show signs of slowing, noted Anirban Basu, ABC’s chief economist.
“The backlog is narrowing and confidence started to decline modestly in February,” Basu said. “While it is too early to predict an industry-wide downturn, as confidence readings continue to point to growth in the sales, employment and profit margin dimensions, it appears that a rising tide of project cancellations and postponements has begun to leave its mark”.
Inflation, meanwhile, remains “stubbornly durable,” which he points out high interest rates to stay longer, Basu added. This gives higher borrowing costs more time to alter economic momentum.
“With so much federal money still flowing into the economy, there will be support for growth in certain segments of construction, including public works and manufacturing-related megaprojects,” Basu said. “But the weakness of the industry is most evident in the segments that are most purely dependent on private financing.”
