ABC: Construction Backlog Bounce Back in October

According to an Associated Builders and Contractors (ABC) member poll conducted from October 20 to November 2, the Construction Backlog Indicator increased to 8.1 months in October.

The reading is 0.5 months higher than in September 2021 and 0.4 months higher than in October 2020.

In October, however, ABC’s Construction Confidence Index ratings for sales and profit margins fell, while the index for staffing rose marginally.

The sales and staffing numbers are still over the 50-point mark, indicating that growth is expected over the next six months. Profit margin estimates declined when the index for profit margins fell below that threshold.

“After declining for two months, the nonresidential construction backlog bounced back in October,” said Anirban Basu, ABC’s Chief Economist.

“But some of the renewed momentum appears to be at the expense of profit margins. ABC’s Construction Confidence Index indicates that the average contractor expects profit margins to dip over the next six months. The implication is that contractors are finding it difficult to pass along all the cost increases caused by higher materials prices.”

“The good news is that demand for construction services remains elevated despite weaker economic growth and a stalled federal infrastructure package,” Basu added.

“With interest rates low and liquidity high, many investors are seeking positive rates of return through investment in real estate and new construction. Partially as a result, contractors continue to expect sales and employment to grow in the near term. It may be that many project owners have adjusted expectations about construction costs and are ready to move forward despite them. If that stays true, backlog should continue to rise from current levels.”