CBI Map of Regions and Backlog Months: Q4 2011 vs. Q4 2012
Associated Builders and Contractors (ABC) today reports that its Construction Backlog Indicator (CBI) remained unchanged at 8 months from the third quarter through the fourth quarter of 2012; however, it is up 2.4% compared to a year ago. CBI is measured in months and reflects the amount of construction work under contract, but not yet completed by nonresidential contractors.
“CBI failed to rise during the fourth quarter of last year, a reflection of numerous factors, including fiscal cliff fears, highly constrained public capital budgets and lackluster macroeconomic growth,” said ABC Chief Economist Anirban Basu. “However, backlog did not decline, suggesting that nonresidential construction spending is likely to remain flat during the initial months of 2013 and then possibly trend higher during the latter part of the year.
“There are myriad sources of risk to the nonresidential construction outlook, including automatic sequestration, which likely would result in a pullback in federally financed construction projects, Basu said. “As the president and Congress struggle to agree on ways to reduce the federal government’s large deficits, this debt presents major issues for contractors in the form of higher future interest rates and slower long-term expansion.”
Construction backlog rose from the third quarter to the fourth quarter of 2012 in the Northeast and the South, while slipping in the Middle States and West.
The South reports the lengthiest backlog of any region at 8.91 months, but has not improved during the past year (8.92 months during the fourth quarter of 2011).
Construction backlog in the West rose by 1.72 months in 2012 — the most significant increase among all regions.
“The large jump in CBI in the West during the third quarter was not repeated during the fourth quarter,” said Basu. “Better economic performances in markets such as San Jose, Calif.; Los Angeles; Seattle; Phoenix; and Las Vegas have positioned the West to enjoy better than average recovery, though the region is still hamstrung by delicate public finances in states that were hit particularly hard by the nation’s housing downturn.
“The Middle States also did not experience enhanced backlog during last year’s final quarter,” Basu remarked. “This may be attributed to a loss of momentum in industrial production during the latter part of 2012. However, given America’s growing appetite to produce, the Middle States appear positioned for continued gradual recovery during the next year.
“In the South, there was a renewal of momentum during the fourth quarter, due in part to improving economic circumstances in Florida and Georgia,” Basu added. “Backlog increased in the Northeast for a third consecutive quarter, and may be partially attributable to improved bank balance sheets in that part of the nation, helping to accelerate lending for commercial real estate projects.”
All three industry segments experienced increases in construction backlog compared to a year ago.
Construction backlog in the heavy industrial segment contracted by half a month from the third quarter to the fourth quarter 2012, falling from 6.73 months to 6.23 months.
The largest year-over-year increase in backlog was in the infrastructure segment, where CBI rose by 0.63 months.
“The decline in heavy industrial CBI is consistent with the recent loss of momentum in the nation’s industrial production growth,” stated Basu. “The export environment has been challenging in a number of product categories due to global economic deceleration during the past two years, which explains some of the lost momentum.
“Backlog in the commercial construction category increased for a third consecutive quarter, a reflection of ongoing recovery in consumer spending, including tourism, and growth in professional services employment,” Basu said. “The year-over-year expansion in infrastructure is reflective of growing construction spending in categories such as power, utilities and transportation.”
Highlights by company size:
During the fourth quarter, construction backlog declined for all firm categories except those with annual revenue in excess of $100 million.
The largest firms, those with annual revenues greater than $100 million, report an average backlog approaching 11 months.
On a year-over-year basis, all firms except for those in the smallest category (annual revenue below $30 million) experienced increases in CBI.
Firms with annual revenue between $30 million and $50 million registered the largest annual gain (2.5 months), consistent with the fact that much of the improvement during the past year has occurred among subcontractors in this revenue category.
“The smallest firms continue to face the shortest backlog and greatest uncertainty,” said Basu. “Construction backlog among this group actually has declined during the past 18 months.
“In general, larger general contractors and subcontractors, which tend to have more solid banking and insurance relationships, appear best positioned to gain market share by taking on larger projects,” said Basu. “The fragile nature of smaller firms may help explain why these contractors are alone in terms of experiencing a long-term decline in average backlog.”