Construction activity saw a sharp increase in project stress last month, reversing recent declines, according to the latest data from Cincinnati-based ConstructConnect.
The project stress index, a measure of construction projects that have been stalled, abandoned or have a late bid date, rose 14.7% in November. Despite that increase, the index remains below its post-COVID peak and is 5% lower than where it started in 2024, said Michael Guckes, chief economist at ConstructConnect.
“The index has only just unwound the decline in stressed conditions that began in the months just before the Fed’s rate cut began,” Guckes said. “Now, with the election results known, renewed concerns about higher inflation and the loss of immigrant construction labor may be dampening the mood of property owners and developers.”
The peak came despite a Additional rate reduction expected after the Fed’s Open Market Committee meeting ends on Wednesday.
Increase in retentions and dropouts
According to the data, levels of pending and abandoned projects rose significantly over the past month.
Projects on hold increased by 29.4%, while project abandonments increased by 31.9%.
The reversal brings conditions back to levels seen before the Federal Reserve began cutting rates in September. That suggests renewed caution among homeowners and developers, Guckes said.
“November’s results saw a significant rebound in suspended and abandoned activity from the all-time lows of recent months,” Guckes said. “This could be a sign that the market was too optimistic about what the Federal Reserve was willing to do.”
The pattern of volatility may persist until regulatory conditions begin to firm up in 2025, Guckes said. He added trade disruptions between the US, Canada and Mexico due to proposed rates could further affect the pricing and availability of critical construction resources.
Backlog activity was largely unchanged, falling 0.2% in November.
Stings in the short term but improves in the long term
The strong upswing in November contrasts with a more positive trend from last year. Year after year, stress levels still show improvement, according to ConstructConnect.
That difference in timing, with recent stress levels rising but improving compared to a year ago, reflects lingering uncertainty, Guckes said.
The number of pending public and private projects was almost unchanged from November 2023. Abandons in the private sector fell by 20% over the past 12 months, the report said.
“Both sectors have seen a reduction in the number of abandonments since the Fed started lowering interest rates,” Guckes said. “If this change holds, it could indicate that developers are willing to be patient in the hope of lowering rates even further.”
