ABC’s Construction Backlog Indicator Remains Elevated in First Quarter of 2018
Associated Builders and Contractors reports that its Construction Backlog Indicator contracted to 8.8 months during the first quarter of 2018, down 9 percent from the prior quarter. CBI is down 2 percent on a year-over-year basis.
“The Construction Backlog Indicator hit an all-time high during the fourth quarter of 2017,” said ABC Chief Economist Anirban Basu. “A number of factors pushed backlog lower during the first quarter of 2018, including an extensive winter. Only one region has experienced a decline in backlog on a year-over-year basis: the Middle States, which encompasses the Upper Midwest. There also was a significant uptick in survey participation during the first quarter, which may have helped shape the result. In sum, average backlog remains lofty by historic standards.
“Given improved weather and normal seasonal factors, it is likely that backlog will bounce back during the second quarter. However, the level of improvement may be undermined by a combination of worker shortages and rapidly rising construction materials prices. Despite recent increases in the costs of delivering construction services due to rising human capital and materials costs, there is scant evidence of a decline in demand for construction services,” said Basu.
Highlights by industry include the following:
Backlog in the commercial/institutional segment fell for the first time since the end of 2016. Despite the 8.8 percent quarterly decline, backlog in this segment remains 3.2 percent higher than the same time one year ago. However, this sector is vulnerable to further declines given its significant exposure to rising borrowing costs, higher materials prices and growing concerns regarding product saturation in a number of first-tier American real estate markets.
Average backlog in the heavy industrial category rebounded during the first quarter, expanding 13.5 percent. Despite this sizable increase, the segment remains roughly unchanged at historically low levels on a year-over-year basis. Construction spending related to manufacturing has been drifting lower for months. While there have been some highly visible announcements regarding large capital projects in this segment, concerns regarding trade wars are likely to suppress backlog to a meaningful degree.
Backlog in the infrastructure category drifted back to Earth during the first quarter, declining by more than two months from levels observed during the fourth quarter of 2017. This reading may have been impacted by a sharp increase in survey participation. Weather likely played an even larger role. The expectation is that backlog in this category will expand for the balance of the year as improving state and local government finances spur more investment in education, public safety, highway/street and other publicly financed categories.