Backlog drops to lowest level since Q1 2022

This audio is auto-generated. Please let us know if you have feedback.

Dive Brief:

  • Backlog dipped again in October to 8.4 months due to a sharp drop in commercial, institutional and infrastructure work, according to a Tuesday release from Associated Builders and Contractors.
  • The group’s Construction Backlog Indicator fell 0.6 months, or 6.7%, from September’s reading of nine months and remains down about 4.5% over the past year. The measure now stands at its lowest level since the first quarter of 2022, according to ABC.
  • Firms with under $30 million in revenue felt the pinch the most, according to an ABC member survey conducted Oct. 19 to Nov. 2. Those smaller contractors lost 1.2 months compared to September’s backlog, dropping from 8.4 months to 7.2 months.

Dive Insight:

Large contractors, however, continued to pile on work. Companies with annual revenue greater than $30 million posted backlog growth. Firms that had between $50 million and $100 million in sales notched the biggest gain, at 1.8 months, amid an environment of booming megaprojects.

The slump among smaller contractors in this month’s report marks the third straight month of overall backlog contractions, as tightening credit and high financing costs begin to drag on construction activity.

“While larger contractors continue to disproportionately benefit from a bevy of megaprojects around the nation, many smaller contractors are feeling the sting of weaker economic fundamentals in struggling commercial real estate segments,” said Anirban Basu, ABC chief economist. “Smaller contractors are often the ones most dependent on developer-driven activity. With developers facing both higher borrowing costs and greater difficulty lining up project financing, backlog among some contractors is beginning to dissipate.”

Contractors tied to office, shopping center and multifamily markets are “likely experiencing difficulty lining up work,” said Basu. Meanwhile, other contractors specializing in booming sectors, like manufacturing, industrial, infrastructure, data centers and healthcare continue to boast healthy backlog levels, Basu added.

“This is precisely what ABC economists predicted,” said Basu. “This helps explain declines in the readings for ABC’s Construction Confidence Index in all three dimensions: sales, unemployment and margins.”

Despite the drop in ABC’s confidence index, each of those readings still remain above 50. That suggests industry growth as a whole has yet to reach “contractionary territory,” said Basu.

Only the Middle States region of the U.S. posted gains to its backlog in October, while every other region of the country posted a drop.

Comments are closed.