WASHINGTON, Feb. 19, 2019—Associated Builders and Contractors reported today that its Construction Backlog Indicator contracted to 8.9 months during the fourth quarter of 2018, down 1.1 percent from the third quarter and 7.5 percent compared to a year ago. CBI reached a record high of 9.9 months in the second quarter of 2018 and averaged about 9.1 months throughout all four quarters of last year.
CBI is a forward-looking economic indicator that reflects the amount of work that will be performed by U.S. commercial, institutional, industrial and infrastructure construction contractors in the months ahead.
“Though backlog has dipped slightly in the last quarter of 2018, it remains high by historic standards,” said ABC Chief Economist Anirban Basu. “A number of factors contributed to the decline, including a surge in materials prices in early 2018, which likely hindered project planning and contract negotiations later in the year. Interest rates also rose during much of the year, potentially resulting in some projects being postponed or cancelled. It is also likely that the feverish market volatility during the fourth quarter of 2018 caused some investors to hold off until the financial marketplace stabilized, which it recently did.
“That said, backlog in the heavy industrial segment rose slightly compared to the third quarter of 2018,” said Basu. “In fact, with industrial production surging for much of last year and with capacity utilization on the rise, the industrial category achieved its highest level in the history of the series during the final quarter of 2019.
“Backlog in the South expanded at a more rapid pace than in the other three regions during the final quarter of 2018,” said Basu. “This is not altogether surprising—Southern markets like Atlanta; Orlando, Florida; Charlotte, North Carolina; Dallas; and Nashville, Tennessee, are growing significantly. This has much to do with rapid population growth, which naturally creates demand for additional infrastructure. By contrast, the Northeast is hampered by growing concerns regarding overbuilt commercial segments and the Middle States are collectively beginning to feel the effects of an auto production cycle that may have peaked.”
Highlights by Region
· After decreasing by more than a full month in the third quarter of 2018, backlog in the South bounced back to 11.21 months, the second highest level on record for the region. The South’s backlog remains the highest the four regions, as has been the case since the fourth quarter of 2014. This is attributable to surging economies in much of the south, including Orlando, Atlanta; Nashville and Dallas.
· Backlog in the Northeast fell by exactly one month from the third quarter of 2018 to the fourth. Backlog is down by more than two months compared to the same time one year ago. There appears to be growing concern that certain segments of commercial real estate are becoming overbuilt, including in the New York, Boston and Washington metropolitan areas. Amazon’s recent HQ2 announcement may help countervail some of these concerns, at least in the Washington metro area.
· Backlog in the Middle States remained between seven and eight months during the entirety of 2018. Still, there has been a gradual pullback in backlog, with the most recent report representing the lowest level of backlog in three years. The Middle States also remain associated with the lowest level of backlog among any region. There is evidence that the auto production and sales cycle has peaked, which has a disproportionate impact on the Middle States.
· Backlog in the West declined on a monthly basis, which could be attributable to the wildfires that ravaged California in November 2018. Regional backlog remains approximately two months higher than during the fourth quarter of 2017 as markets like Phoenix; Los Angeles; San Jose, California; Portland, Oregon; and Seattle continue to experience growth.