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September 18, 2020

Construction backlog blipped up last month

Photo by Benjamin Minnick [enlarge]
Near Pike Place Market, crews are installing 100 soldier piles to support a retaining wall that is part of the new Alaskan Way corridor being built by Gary Merlino Construction and subcontractors. Infrastructure projects had the highest backlog in August.

The pandemic's grip on the construction economy may be loosening up a bit, according to the latest data from the Associated Builders and Contractors.

ABC reported this week that its Construction Backlog Indicator rebounded to 8.0 months in August, an increase of 0.2 months from July's reading. Still, the number is a half-month lower than in August 2019.

There was other good news from the association: its Construction Confidence Index readings for sales, profit margins and staffing levels expectations all increased in August.

Sales expectations rose above the threshold of 50, to 53.0, indicating expectations of expansion over the next six months. Contractors expect their profit margins to shrink during that time period, but are more optimistic compared to July (an increase from 42.7 to 47.8). Staffing level expectations increased, with only 23% of contractors expecting to cut positions during the next six months (an increase from 50.6 to 54.4).

“The construction backlog and confidence indicators both surprised to the upside in this report,” said ABC Chief Economist Anirban Basu in a news release. “Prior to August, the message emerging from these leading indicators was unequivocally negative, with contractors collectively indicating sharp declines in backlog and an expectation that both sales and profit margins would shrink in coming months.

“While there are many reasons to believe that the months ahead will present challenges for nonresidential construction — including tighter credit conditions, weak state and local government finances and elevated commercial vacancy rates — the August data provided a much-needed respite from gloom and doom,” he said.

Backlog and confidence will likely be volatile during the month ahead, according to Basu.

“Many projects have been postponed, yet if they are quickly brought back to life as economic recovery persists, backlog could begin to rise,” he said. “However, there is the possibility that many project postponements will eventually become cancellations, impacting both backlog and contractor confidence. For now, the expectation is that sales and industry employment will climb over the next six months, but that profit margins will remain under pressure.”

A breakdown of the numbers showed backlog strongest for infrastructure work, at 9.6 months, and lowest for commercial/industrial, at 7.8 months. Infrastructure was actually up 0.4 months over August 2019.

The rebound was strongest in the West region, where backlog was 8.9 months, up 2.4 months over July and 1.5 months over August 2019.

The Construction Backlog Indicator is an index of work expressed in months. It measures the amount of work in dollars that construction companies have contracts for but have not yet completed. For its August report, ABC surveyed its members between Aug. 20 and Sept. 1.

ABC is a national construction industry trade association with over 21,000 members in 69 chapters. It is a proponent of merit shop construction.

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