Skewed backlog data indicate construction slowdown

Skewed backlog data indicate construction slowdown

Skewed backlog data indicate construction slowdown Large contractors breached a new peak in construction backlog during the second quarter of 2016, according to the Associated Builders and Contractors’ (ABC) Construction Backlog Indicator (CBI).

The benchmark peaked at 14.06 months from the previous high of 12.25 months in the first quarter of the year for contractors with annual revenues of more than $100 million.

However, the national average fell to 8.5 months during the second quarter, down 1.6% from the previous quarter. On a year-on-year basis, CBI remained virtually unchanged, ABC reported. The industry monitor said this could be an indication that non-residential construction is slowing down.

“While backlog is hardly collapsing, the period of growing in non-residential construction spending appears to be ending. In fact, non-residential construction spending data indicate that growth has been slowing for a number of months, something that prior weak CBI readings suggested would occur,” observed ABC chief economist Anirban Basu.

“During the early stages of the non-residential construction recovery, larger contractors were disproportionately gathering market share,” said Basu. “This was occurring for a number of reasons. For instance, stimulus-related spending generally favoured large contractors tied to infrastructure build-out. Larger contractors are also more likely to maintain solid banking and insurance relationships even during times of economic and financial stress, thereby allowing them to productively compete for more projects.”

Outside the large contractor segment, however, Basu noted that the economic slowdown is affecting the construction industry.

“Financial regulators have begun to express growing concern regarding possible bubbles forming in certain real estate segments in certain cities, which may have rendered the developer financing environment somewhat more challenging. A slowdown in business investment, including in energy-related sectors, has undoubtedly also played a role,” he concluded.