According to Associated Builders and Contractors (ABC), the Construction Backlog Indicator (CBI) for the fourth quarter of 2014 declined 0.1 months, or 1 percent. Despite the quarter-over-quarter decline, backlog ended the year at 8.7 months, which is still 4.4 percent higher than one year ago.
“Inconsistent growth in the volume of public work continues to suppress the pace of nonresidential construction; however, private construction momentum continues to build,” said ABC Chief Economist Anirban Basu. “With hotel occupancy rising, office vacancy falling and demand for data climbing exponentially, a number of key private segments are positioned for rapid growth in construction spending this year.
“There are a number of factors that are likely to be beneficial to nonresidential contractors in 2015,” said Basu. “First, although interest rates were expected to rise after the Federal Reserve ended its third round of quantitative easing, they have actually been trending lower—due to factors such as falling interest rates abroad and a strengthening U.S. dollar—which helps contractors with construction volume and borrowing costs. Second, materials prices have continued to fall—particularly inputs related to the price of oil, iron ore and copper. This also makes it more likely that construction projects will move forward and helps boost profit margins.”
Average backlog rose in three of four regions, with the West representing a major exception. The declining backlog in the West can partially be explained by ongoing issues at West Coast ports, related economic uncertainty and softening of public construction. The Northeast’s backlog remained above 10 months for the second consecutive month, thanks to Boston’s technology industry, New York’s financial sector, Philadelphia’s diversified economy and Baltimore’s health and defense sectors. Also, Pennsylvania and Maryland are among the states that have raised revenues to help better finance infrastructure work. In the Middle States, where shale-related production has spread to Ohio and Illinois and industrial production has been edging higher, average backlog expanded above 7 months for the first time in the history of CBI.
- Average backlog in the South is back above 9 months for the first time since the first quarter of 2014.
- Though backlog in the West fell sharply during 2014’s final quarter, average backlog remains comparable to where it was a year ago.
- Both the Northeast and the Middle States registered levels of average backlog unseen during the history of the CBI survey.
Year-Over-Year CBI Map of Regions and Backlog Months
Fourth Quarter 2013 v. Fourth Quarter 2014
Due primarily to a surge of infrastructure projects in the Middle States and Northeast, infrastructure-related backlog rose to almost 10 months during 2014’s final quarter. Average backlog in the heavy industrial segment is up by more than two full months over the past year, a reflection of the surge in industrial production observed nationally since the recession ended in mid-2009.
Company Size Commentary
- Average backlog in the commercial and institutional category is virtually unchanged over the past year, suggesting the pace of recovery will remain moderate overall.
- Infrastructure-related spending is likely to be brisk going forward primarily due to improved state and local government fiscal conditions.
- Heavy industrial average backlog remains in the vicinity of multi-year highs, but these readings do not fully reflect the impact of a stronger U.S. dollar, which may result in a slowdown in export growth and an associated softening in industrial investment.
Average backlog remained above 8 months in all four firm size categories during the fourth quarter of 2014. Larger firms continue to register the lengthiest backlog. Firms in both the $30 million-$50 million annual revenue category and the $50 million-$100 million category both registered strong growth in backlog during the fourth quarter. Average backlog among those firms with more than $100 million in annual revenue has declined by nearly half a month over the past year, with the greatest losses being among large firms in the West.
Highlights by Company Size
- During the fourth quarter, backlog expanded for mid-sized companies with annual revenue ranging between $30 million-$100 million. These firms enjoyed approximately half a month expansion in their respective average backlogs during the fourth quarter.
- On the other hand, backlog for small firms (annual revenue less than $30 million) and very large firms (annual revenue greater than $100 million) declined 0.2 months and 0.5 months, respectively.
- Large firms appear to have been impacted by a slowdown in large project infrastructure spending in certain parts of the country, while smaller firms have been impacted by greater observed difficulty in obtaining bonding for projects in the context of accelerating small firm failure.
- Average backlog has increased by nearly three months or by more than three months for all firm size categories since the fourth quarter of 2009.