Commercial, institutional projects boost construction backlog

Dive Brief:

• Construction backlog increased about 4.5% in July to 9.3 months due to growth in commercial and institutional activity, according to Associated Builders and Contractors analysis. The reading remains up about 6.9% over the past year.
• The jump in July follows two months of no movement in the backlog level, largely due to drops in heavy industrial projects offsetting gains in other categories.
• “Nonresidential construction backlog continues to expand, which is precisely what contractors had predicted six months ago,” said Anirban Basu, ABC chief economist. “For many months, contractors have been signaling an expectation that demand for their services would continue to expand despite high and rising interest rates and a spate of regional bank failures.”

Dive Insight:

Basu maintained there are surprises in the data despite the overall gain in backlog.

For example, backlog dropped in both the infrastructure and heavy industrial categories. That’s possibly because the current administration is striving to reserve many large-scale projects for unionized firms, said Basu.

“ABC members are largely nonunion, and therefore may be locked out of a meaningful proportion of significant opportunities,” said Basu in the release. “Diminished competition for such projects would tend to drive up construction service delivery charges, much of which are financed by American taxpayers.”

Nevertheless, ABC’s Construction Confidence Index reading for profit margins and staffing levels moved higher in July, while the reading for sales fell slightly, according to the report. All three readings still remain above the threshold of 50, indicating growth expectations for the remainder of the year.

The last time the outlook for any of those metrics reached negative was a year ago, in July 2022, when profit expectations dipped to 47.5, according to the report.

The South remains the region with the highest level of backlog, despite being the only region with lower backlog on a year-ago basis. 

ABC’s backlog reading measures the work that contractors have booked, but have not yet begun. The association pairs the benchmark each month with its Construction Confidence Index, which polls construction executives about their outlook for sales, profit margins and staffing over the next six months.