Inflation and interest rates contribute to backlog dip

Dive Brief:

  • Construction backlog dipped to 8.1 months in February due to excess inflation and elevated interest rates, according to a Tuesday release from Associated Builders and Contractors.
  • The group’s Construction Backlog Indicator fell 0.3 months from January’s reading and remains 1.1 months behind February 2023.
  • Backlog fell in February for every size of contractor except for those with under $30 million in annual revenue. Over the past year, the largest contractors — those with greater than $50 million in revenue — have experienced the greatest decline in backlog, according to ABC.

Dive Insight:

Despite the dip in backlog levels, ABC’s Construction Confidence Index reading for sales, profit margins and staffing levels all indicate expectations for growth over the next six months.

However, each of these readings have recently begun to show signs of deceleration, noted Anirban Basu, ABC chief economist.

“Backlog is declining and confidence began to fade modestly in February,” said Basu. “While it is far too early to predict an industry-wide downturn given that confidence readings continue to signal growth along sales, employment and profit margin dimensions, it appears that a rising tide of project cancellations and postponements has begun to make its mark.”

Meanwhile, inflation remains “stubbornly durable,” which points to elevated interest rates to stick around for longer, added Basu. That gives higher borrowing costs more time to eventually upset economic momentum.

“With so much federal money still entering the economy, there will continue to be support for growth in certain construction segments, including public works and manufacturing-related megaprojects,” said Basu. “But industry weakness is more apparent in segments that rely more purely on private financing.”

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