ABC Construction Backlog Indicator Falls

The Associated Builders and Contractors (ABC), Inc., Arlington, Va., recently reported that its latest Construction Backlog Indicator (CBI) is sliding backward as the nation’s construction contract activity declined 3.3% in September to 6.7 months after falling more than 5% in August to 6.9 months. CBI is a forward-looking indicator that measures the amount of construction work under contract to be completed in the future.

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“CBI is now edging back toward levels observed in early 2010 as new government stimulus-financed construction projects are no longer translating into additional backlog — a lack of momentum in three construction segments that is cause for concern,” says Anirban Basu, ABC chief economist. “However, CBI remains well above its historic low point of 5.5 months recorded in January of this year.”

As a result of fewer new contracts being put on the table, construction backlog in the infrastructure-related sector is no longer expanding, according to ABC. “For many months, the infrastructure category drove increases in backlog, but that is no longer occurring,” says Basu. “Backlog in the infrastructure category is now approaching 9 months, down from more than 11 months during the early summer of 2010, whereas recovery in privately financed activities remains stalled, with the overall effect that backlog is now shrinking in that sector.”

Although the U.S. economic recovery is now roughly 17 months old, non-residential construction activities typically lag the overall economy by 12 to 24 months, says Basu. Therefore, privately financed activities should soon begin to show signs of rebound. However, through September, backlog in categories dominated by private financing has yet to expand on a sustained basis. ABC anticipates improvement in construction backlog in the industrial and commercial/institutional categories as the economy continues to recover. But backlog may continue to decline in the infrastructure category as stimulus funds are steadily depleted.

“Despite the improvement in year-over-year statistics, the lack of any discernible momentum in backlog across the three construction segments is cause for concern,” says Basu.

• The infrastructure sector continues to report the largest average construction backlog at 9 months, though it is now shrinking. Between July and September, backlog in this category declined by more than one month.
• The heavy industrial category registered the largest expansion in construction backlog from 4.5 months in September 2009 to 6.5 months in September 2010.
• Construction backlog in the commercial and institutional sector grew by nearly one month from the same time last year.

SHOCKING STAT OF THE MONTH

$135 billion

The projected value of construction starts for green buildings in 2015.

Source: McGraw-Hill Construction