Construction Backlog Bounces Back in Q2 2012

Associated Builders and Contractors (ABC) today reports its Construction Backlog Indicator (CBI) rose 4.3 percent in the second quarter of 2012 after declining the two previous quarters. Despite the quarterly expansion, CBI is 0.3 months, or 4.2 percent, below the second quarter of 2011. CBI is a forward-looking economic indicator that measures the amount of construction work under contract to be completed in the future.

“The CBI accurately predicted both the broader economic softness experienced during the first half of 2012 as well as a flattening of the nation’s nonresidential construction recovery,” said ABC Chief Economist Anirban Basu. “The latest CBI data is now projecting gradual acceleration in nonresidential construction spending, and perhaps a slight increase in the overall pace of construction activity going forward.

“Unfortunately, any improvement in nonresidential construction activity is likely to remain modest given the ongoing uncertainty regarding America’s fiscal cliff - a number of tax increases and spending cuts that take effect at the end of the year - as well as European sovereign debt issues and increasingly volatile energy prices,” Basu said. “While there is pent-up demand for new construction in the power, manufacturing and infrastructure segments, the level of economic and political uncertainty remains far too elevated to permit more aggressive nonresidential construction spending recovery in the near term.”

Regional Highlights

• During the second quarter of 2012, construction backlog expanded in three of the four regions of the country compared to the first quarter, with the exception of the South. Despite its quarterly decline, the South continues to report the lengthiest backlog at 8.75 months.
• The West registered the largest quarterly gain among the four regions, with construction backlog rising from 6.6 to 7.5 months.
• The Northeast had the smallest gain in construction backlog at .05 months for the quarter, and is now at 7.28 months.
• Construction backlog in the Middle States dropped .21 months from one year ago and is the shortest in length at 6.73 months.

“The South continues to lead the way in construction backlog, due to commodity related production, including food processing, oil and natural gas as well as substantial investment in manufacturing plants and equipment,” said Basu. “However, average backlog has declined for three consecutive quarters in the South, which may be due to a bit of a slowdown in energy-related investment because of the low price of natural gas.

“In contrast, the West has experienced increasing backlog for two consecutive quarters and arguably enjoys more forward momentum than any of the four regions monitored by ABC,” Basu said. “California’s innovation economy, Washington’s active aerospace and technology industries and Arizona’s overall economic improvement are creating new opportunities for contractors, both directly and indirectly.”

View complete regional trend data. 

Industry Highlights

• During the second quarter of 2012, average construction backlog rose for all monitored industry segments after declining the two previous quarters.
• The infrastructure segment registered the largest quarter-to-quarter construction backlog increase, up 1.4 months to more than 10 months - the first time infrastructure backlog has been above 10 months since the second quarter of 2010.
• Construction backlog in the heavy industrial category is at its highest level since the first quarter of 2011 but at the lowest level of all the industry segments at 5.92 months.
• Construction backlog in the commercial and institutional segment is 0.85 months lower than one year ago and now stands at 7.78 months.