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Data Reveals 18 Percent Decrease in New Construction Activity
Associated Builders and Contractors’ (ABC) latest Construction Backlog Indicator (CBI) highlights a full year’s worth of data in commercial, industrial, institutional and infrastructure construction—and, like most economic reports these days, the results are a mixture of good and bad news. Despite evidence of a major impact from the stimulus package, the national average CBI declined 18 percent to 5.8 months in November 2009 compared to November 2008.
"You can summarize three important points from the recent CBI data: The worst is over for the construction industry as a whole; the recovery may not be a sustained one; and the United States is rebuilding its infrastructure capacity," says ABC Chief Economist Anirban Basu.
"Throughout 2009, the CBI for the infrastructure category has risen as stimulus spending began to flow, and that is now the healthiest average backlog at 10.9 months. However, despite the massive amount of federal dollars involved, smaller construction firms continue to suffer abnormally short backlogs, and there is very little evidence of improvement in backlog within the commercial and institutional category," Basu says.
Regional Highlights
Overall, November 2009 backlog in all four regions remains below November 2008 levels.
From October 2009 to November 2009, average backlog expanded in the South and Middle States, and declined in the West and Northeast. This is consistent with broader economic data that indicate the most forceful economic recoveries are taking place in commodity-intensive states such as Nebraska, South Dakota, Louisiana and Mississippi.
The average backlog in the South is now 6.5 months, the longest of any region. Despite recent improvement, the Middle States continue to suffer the shortest average backlog at 4.9 months, largely a reflection of the ongoing economic malaise impacting the upper Midwest.
"There is ample evidence that the worst period of decline for nonresidential construction across the United States is now behind us. Though backlog remains well below levels from November 2008, it has bounced back from cyclical lows in each region of the nation," Basu says.
For example, backlog in the Northeast has increased by more than four weeks since being measured at 4.7 months in February 2009. This pattern is repeated in all other geographies that ABC monitors.
"While this trend in encouraging, we cannot assume ongoing improvement will be sustained," Basu says. "Once stimulus monies begin to run out, backlog could begin to trend lower again."
Industry Highlights
In November 2009, average backlog in the heavy industrial category improved significantly to 7.53 months—the highest backlog for this category since January 2009.
Average backlog in the infrastructure category bounced back toward 11 months after weaker performance in September and October. Meanwhile, the commercial and institutional category was the only segment that sustained a decline in backlog compared to November 2008.
"Improving confidence in the domestic and global economies, expanding exports and rising inventory investment—as well as some thawing in credit markets—are likely responsible for the CBI’s increase," Basu says. "America is rebuilding its capacity. Though the commercial and institutional category remains weak due to sluggish labor markets, rising office vacancy rates and declining hotel occupancy rates, renewed investment in the heavy industrial and infrastructure categories indicates a brighter future for this sector."
Company Revenue Highlights
Firms categorized as having less than $30 million, $50 million to $75 million, and $100 million or more in revenue experienced an expansion in backlog from October 2009 to November 2009. However, with the exception of firms in the $50 million to $75 million category, each category registered an average backlog below November 2008 levels.
Larger companies, which frequently are most closely aligned to heavy industrial and infrastructure-related construction, continue to enjoy the longest average backlog at 8.5 months.
By contrast, firms with revenues between $10 million and $30 million report an average backlog of roughly 5 months, and firms with revenues between $30 million and $50 million report a backlog of less than 5 months.
"Although the CBI reflects a generally improving climate for nonresidential construction, it is apparent that many firms continue to struggle," Basu says. "For instance, average backlog is now lower in the $30 million to $50 million annual business revenue category than it has been during any CBI survey period."
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Wednesday, September 8, 2010