CBI Hits Post-Recession High

Nonresidential Construction to be Among Nation’s Stronger Segments

Associated Builders and Contractors’ (ABC) Construction Backlog Indicator (CBI) hit a post-recession high in the fourth quarter of 2013, growing from 8.2 months to 8.3 months (1.3 percent). Compared to a year ago, CBI is 3.9 percent higher—up from 8 months at the end of 2012.

“CBI indicates the final three quarters of 2013 were a period of progress for nonresidential construction,” said ABC Chief Economist Anirban Basu. “Although other indicators have not been quite as positive—nonresidential construction spending has risen only sporadically in recent months—the first quarter’s bitter weather likely means some construction activity has been put off, which means the positive trend reflected in this CBI will likely continue.

“Although CBI’s pace of expansion should be enough to keep the nonresidential construction recovery going, there are significant headwinds for the industry,” Basu said. “The December and January job reports show the economic recovery is sporadic and uncertainties surrounding the health care law also are likely to slow full-time job creation for several reasons, some of which were highlighted in a recently released CBO report. Sequestration, though recently relaxed, still constrains federal spending growth and many state and local governments continue to wrestle with burgeoning health care costs and underfunded pension liabilities.

“Expansion in segments such as energy production, industrial production,social media, robotics, international trade and online retail should lead to greater opportunity for contractors in 2014,” Basu said. “Specifically, the recent CBI report shows industrial and energy expansion will continue to position states like North Dakota and Texas at the vanguard of the U.S. nonresidential construction recovery,” Basu said. “In addition, states that have emerged from the foreclosure crisis such as Florida, Nevada, California, Arizona and Georgia are also well positioned for 2014. The positive wealth effects associated with last year’s booming stock market will help states with large numbers of financially wealthy citizens, including Connecticut, Massachusetts, New Jersey,New York, Maryland, Virginia and Washington.”

“Because the economic recovery continues to be driven disproportionately by consumer outlays spending and associated retail inventory accumulation, the commercial/institutional category will experience expanding backlog,” Basu said. 

CBI Map of Regions and Backlog Months Fourth Quarter 2012 v. Fourth Quarter 2013

Regional Highlights

  • Quarterly expansion in the West experienced the most significant increase in CBI—powered largely by California, Washington, Utah and Colorado.
  • On a year-over-year basis, the South experienced the biggest construction backlog expansion at about three-quarters of a month, which is largely due to activity in Texas, Florida and Louisiana.
  • The Middle States, which encompass metropolitan areas such as Chicago and Detroit,continue to lag with backlog slipping slightly over the past year.

Regional Analysis

“The South continues to lead the way,” Basu said. "States like Texas and Florida are adding population rapidly, helping to boost both residential and nonresidential construction. The regional data can also overshadow the performance in individual states. For instance, strong performances from North Dakota and Minnesota have helped buoy the Middle States region that contains metropolitan areas such as Chicago and Detroit, both of which have struggled to regain momentum.

See charts and graphs

Industry Highlights  

  • None of the three industry segments in this CBI registered a quarterly change greater than 0.1 months.
  • Commercial and institutional construction has the longest backlog (8.91 months) because of job growth in professional and business services and expansion in certain health care-related segments.
  • Infrastructure and heavy industrial construction have seen backlog slip on a yearly basis. Infrastructure has experienced decreasing backlog since the stimulus package effectively ended;the heavy industrial category is impacted by a combination of a lackluster global economy and low manufacturing plant utilization rates.  

Industry Analysis

“Given the growth in industrial production since the end of the recession, the lack of backlog expansion in the heavy industrial category is somewhat surprising,” Basu said. “However, there was a significant amount of unused capacity available at the end of the recession and even five years into the economic recovery, with manufacturing capacity utilization is only 76 percent. Ongoing consolidation in the domestic manufacturing sector also likely contributes to a lack of significant heavy industrial backlog growth.”  

See charts and graphs   ​

Highlights by Company Size

  • Large firms have benefited disproportionately from the broadening construction recovery,particularly in the commercial/institutional category. Average backlogs for firms with annual revenue between $50 million and $100 million expanded by nearly two months over the past year while firms more than $100 million in annual revenue experienced backlog expansion closer to half a month.
  • The broadening construction recovery is also lifting the fortunes of the smallest contractors.Over the past year, backlog among those firms reporting less than $30 million in annual revenue has increased by 0.8 months on average.·           
  • Backlog declined significantly for firms with annual revenue between $30 million and $50 million,dropping 2.5 months over the past year. However, expectations for broad-based nonresidential construction recovery, including better outcomes in both the industrial and infrastructure categories, means all size categories are likely to experience some degree of improvement. 

Company Size Analysis

“Nonresidential construction’s recovery is broadening, allowing smaller firms to more aggressively participate in industry growth,” Basu said. “Given rising hotel occupancy rates, falling office vacancy rates, steadily improving state and local government finances, the passage of a federal budget, expectations for GDP growth, predicted employment growth, and ongoing expansion of outpatient medical and clinical care, firms in all size categories should be better positioned for revenue growth going forward,” Basu said. “However, larger firms may tend to gain market share in the future since they arguably have an upper hand in recruiting young construction talent, which is in increasingly short supply.” 

See charts and graphs   ​

CBI is a leading indicator measured in months that reflects the amount of construction work under contract, but not yet completed.A lengthening backlog implies expanding demand for construction services. To read more about the latest CBI, click here.