Associated Builders and Contractors Construction Backlog Indicator Edges Higher in November

The Associated Builders and Contractors (ABC) reported that its Construction Backlog Indicator edged higher in November to 8.5 months, up from 8.4 months in October. Year-over-year, the index is down 0.7 months. The results are based on a survey of ABC members conducted between November 20th and December 4th.

ABC notes that despite the monthly increase in November, the backlog is currently 0.8 months lower than July’s cyclical peak. The sharpest declines over that span occurred among contractors with more than $100 million in annual revenues, who collectively reported fewer than 10 months of backlog in November for the first time since 2018Q2.

ABC’s Construction Confidence Index readings for sales and staffing levels increased in November, while the reading for profit margins fell. All three components remain above the threshold of 50, indicating expectations for growth over the next six months.

Commenting on the results of the latest Construction Backlog Indicator, ABC Chief Economist Anirban Basu said:

“A growing number of contractors are reporting declines in backlog. The interest rate hikes implemented by the Federal Reserve appear to be making more of a mark on the economy. Not only has the cost of capital risen over the past 20+ months, but credit conditions are also tightening, rendering project financing even more challenging.

The good news is that certain interest rates have begun to fall in anticipation of Federal Reserve rate cuts next year, perhaps as early as the first quarter. Still, 2024 is poised to be weaker from a construction demand perspective for many firms, especially those that depend heavily on private developers. Those operating in public construction and/or industrial segments should meet with less resistance on average.”