Associated Builders and Contractors’ (ABC)
Construction Backlog Indicator (CBI) for the first quarter of 2010 shows a 4.5 percent increase in construction backlog orders to 6.07 months, up from 5.81 months in the fourth quarter of 2009. From February to March this year, the CBI shot up 17 percent and now stands at 6.05 months.
While the CBI rose in all areas of the country except the West from February to March, the Northeast is the only region to report a higher backlog when compared to March 2009.
“The fact that the CBI is on the rise illustrates that the improvements recently seen in various other indicators, including construction spending, will continue through much of the balance of 2010,” says ABC Chief Economist Anirban Basu. “However, the overall impact of the recession may not be at an end or approaching an end. It is too soon to tell whether the current momentum will continue through 2011.
“As an indicator, the nonresidential construction industry tends to lag the overall economy by 12 to 24 months. With the broader economy having been in recovery for the better part of a year, and with stimulus spending still having an impact, the expectation is that backlog will remain stable or improve in the months ahead,” Basu says. “Still, there are many forces at work that suggest the sector’s recovery may not be sustained as stimulus monies are steadily drawn down and commercial construction remains weak due to high vacancy rates and tight credit.”
Regional HighlightsThe Northeast presently enjoys the highest construction backlog, measured at 7.31 months in March. The South and Middle States also have been experiencing improvements, but backlogs are still down compared to the same time last year.
In the West, backlog has yet to demonstrate significant momentum. It stood at 5.76 months in March, roughly the same level as in August 2009.
“Overall, the nation’s nonresidential construction industry is in the early stages of a rebound, and this is apparent in CBI statistics for the Northeast, South and Middle States,” Basu says. “However, it appears momentum has stalled in the West, which may be due in part to the prevalence of serious state and local fiscal issues, as well as weak housing market performance.”
Industry Highlights
Backlog has been fairly flat for several months in the infrastructure category, posting at 9.33 months in March.
March backlogs in both the heavy industrial and commercial/institutional categories have been on the rise, coming in at 6.61 months and 6.31 months, respectively.
“Construction backlog is no longer falling; in fact, it was rising during the first quarter of 2010—a sign that nonresidential construction’s rebound is spreading beyond government-financed projects and is increasingly private-sector motivated,” Basu says. “It is important to note that the relative flatness of construction backlog in the infrastructure category shows that much of the money associated with the stimulus package has been obligated and is already reflected in backlog.”
Company Revenue Highlights
Firms with annual revenue less than $30 million, between $50 million and $100 million, and in excess of $100 million reported the greatest backlog increases in March compared to February. Specifically in the $50 million and $100 million category, firms saw backlog rise more than one month (now at 8 months) in March compared to February.
In contrast, firms with annual revenue between $30 million and $50 million saw their backlog decrease 0.5 months from February to March.
“Average backlog is now at its lowest level among firms with annual revenue in both the $50 million to $75 million category and the $75 million to $100 million category. Many of these firms appear to be general contractors that continue to be underbid by larger firms with greater resources and greater capacity to undertake projects with little or no profit margin built into their bids. In addition, larger firms may be more likely to maintain productive banking relationships, allowing them to more nimbly access available contractual opportunities,” Basu says. “As for contractors in the $30 million and under category, the impact of the federal stimulus package, as well as an improving economy, is channeling down to them through subcontracting.”