Providing more evidence of a strengthening economy, Associated Builders and Contractors’ (ABC) Construction Backlog Indicator (CBI) set a record as it expanded to 9.45 months during the third quarter of 2017, up 9.8 percent from the second quarter to the longest backlog reading in the eight-year history of the series. CBI is up by 0.8 months, or 9.2 percent, on a year-over-year basis.
CBI is a leading economic indicator that reflects the amount of construction work under contract, but not yet completed. CBI is measured in months, with a lengthening backlog implying expanding demand for construction services.
“The latest backlog reading strongly suggests the post-2009 economic recovery is picking up steam and that the current construction spending cycle, in place since early 2011 for many contractors, is not on the verge of concluding,” said Basu. “Indeed, if anything, the CBI indicates that nonresidential construction firms are becoming busier due to a confluence of factors, including growing business confidence over the past year and a recent rise in energy prices, which is supporting more investment among energy explorers, producers and distributors.
“With economic growth picking up recently, interest rates staying low, asset prices remaining high and confidence elevated among consumers and businesses alike, the nonresidential construction cycle stands to get even hotter in the near term. That should represent a source of joy to contractors, but undoubtedly many are unnerved by growing pressures to secure suitably trained craftspeople who can support on-time, on-budget project delivery. The upshot is that wage pressures will continue to build in the U.S. construction industry. However, based on the most recent CBI, increasing delivery costs have not yet begun to meaningfully slow the nonresidential construction sector’s ongoing expansion cycle.”
Highlights by Region
⦁ Backlog in the South surged to 11.3 months during the third quarter, the highest reading in the history of the series. Many will conclude that this is at least partially due to the storms that raced across Texas, Florida and other communities during the quarter, but there are other factors at work, including the ongoing boom in commercial construction in the Dallas, Atlanta and Miami metropolitan areas.
⦁ Increased activity in major cities along the Boston-to-Washington corridor continued to drive backlog data higher in the Northeast. At 10.2 months, the Northeast has matched its lengthiest backlog in the history of the series, in the fourth quarter of 2014.
⦁ Backlog in the Middle States, where growth has been softer in places like Illinois and Kansas, shrank by 0.3 months during the third quarter. Still, regional backlog can be characterized as stable.
⦁ Backlog in the West was slightly shorter during the third quarter and stands at roughly the same level as one year ago. Given the elevated levels of construction apparent in markets like Las Vegas, Portland and San Jose, one can only conclude that the region’s lower average backlog level compared to other regions is at least partially attributable to a very competitive environment associated with an entrepreneurial climate that spawns more start-up construction firms than other parts of the country. Wildfires impacting much of California also likely stalled a certain level of construction and contractual activity during the third quarter.