WASHINGTON, D.C., Sept. 20–Construction backlog for large contractors reached a new peak of 14.06 months during the second quarter of 2016, according to the Associated Builders and Contractors (ABC) Construction Backlog Indicator (CBI) released today. The new high for companies with annual revenue above $100 million shattered the previous high of 12.25 months for any revenue segment, which was recorded in the first quarter of 2016 and second quarter of 2013.
Nationally, average backlog fell to 8.5 months during the second quarter, down 1.6 percent from the prior quarter. CBI remained virtually unchanged on a year-over-year basis, signaling that growth in the nation’s nonresidential construction industry is slowing.
“While a handful of commercial construction segments continue to be associated with expanding volumes, for the most part, the average contractor is no longer getting busier,” said ABC Chief Economist Anirban Basu. “While backlog is hardly collapsing, the period of growing in nonresidential construction spending appears to be ending. In fact, nonresidential construction spending data indicate that growth has been slowing for a number of months, something that prior weak CBI readings suggested would occur.
“During the early stages of the nonresidential construction recovery, larger contractors were disproportionately gathering market share,” said Basu. “This was occurring for a number of reasons. For instance, stimulus-related spending generally favored large contractors tied to infrastructure build-out. Larger contractors are also more likely to maintain solid banking and insurance relationships even during times of economic and financial stress, thereby allowing them to productively compete for more projects.
“As the nonresidential construction recovery broadened, smaller contractors began to experience a rise in backlog,” said Basu. “However, recent data indicate that once again larger contractors are gaining market share. Small firm backlog has begun to decline.
“There are a number of potential explanatory factors regarding the lack of growth in backlog, the most obvious of which is the continued slow growth of the economy,” said Basu. “Financial regulators have begun to express growing concern regarding possible bubbles forming in certain real estate segments in certain cities, which may have rendered the developer financing environment somewhat more challenging. A slowdown in business investment, including in energy-related sectors, has undoubtedly also played a role.”
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Regional Readings
Despite an overall decline in national average backlog, three regions were associated with rising backlog during the second quarter. Only the Northeast reported a decline in backlog, which at 7.1 months is back to levels not seen since 2011 and 2012. Many of the major Northeast markets, including New York, Boston and Washington, D.C., have experienced significant commercial development over the course of the recovery. The pace of activity appears to have slowed a bit in these markets, perhaps because of rising concerns regarding market saturation in office space and other segments.
Regional Highlights
Sector Breakdown
Average backlog in the commercial and institutional category has remained between eight and nine months for 16 consecutive quarters. The implication is that construction spending in the category has remained at a high and stable level for quite some time and that is slated to continue.
Nonresidential construction data indicate that segments like office and lodging have been at the vanguard of construction spending growth over the past year. ABC’s backlog indicator suggests that significant spending growth in these categories is unlikely going forward, though there is also little indication of a meaningful decline in spending over the near-term. Health care-related construction remains a source of spending stability.
Sector Highlights
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Company Size Trends
Backlog at the nation’s largest contractors soared to the highest level on record, bolstered by large industrial projects. Backlog in all other firm size categories declined on a year-over-year basis, however, with the $30-$50 million category experiencing the largest quarterly decline.
Highlights by Company Size
Note: The reference months for the Construction Backlog Indicator and Construction Confidence Index data series were revised on May 12, 2020. All previously reported quarters and months shifted forward by one period to better reflect the timing of when the surveys were conducted.