US Construction Backlog and Contractor Optimism Rise to Start 2021 Despite Shaky Outlook

Contractor confidence on a growth path that seems likely, if improving public health outcomes can bring back stalled projects and steady work flow

Associated Builders and Contractors
Abc Backlog Indicator
Associated Builders and Contractors Construction Backlog Indicator

The pandemic-induced economic slowdown is throwing off conflicting messages to those trying to anticipate what 2021 has in store for construction.

Estimated fourth-quarter U.S. GDP growth suggests recovery from the recession may be slowing. But the latest Building Materials report from Moody’s Investors Service projects total U.S. construction spending will grow 3.2% in 2021 and 3.4% in 2022, primarily driven by stable residential and public construction activity, but also dependent on recovery in nonresidential spending.

2021 State of Construction Industry: A Forecast for Uncertain Times

But the Associated Builders and Contractors’ Chief Economist Anirban Basu says, “The near-term outlook for nonresidential construction is not especially optimistic. Investment in structures was up just 3% on an annualized basis during 2020’s final quarter after declining by 33.6% and 17.4% in the year’s second and third quarters.”

Nevertheless ABC reported this week that its Construction Backlog Indicator rose for the third month in a row, adding 0.2 months to 7.5 months in the association’s January survey of contractors. Current backlog is 0.9 months lower than it was in January 2020.

ABC’s Construction Confidence Index readings for sales and staffing levels increased in January and remain above the threshold of 50, indicating expectations of growth over the next six months. The index reading for profit margins remained below that threshold, slipping to 47.5 in January.

“Though nonresidential construction spending has continued to recede for the better part of a year, the growing consensus is that the next six months will be a period of improvement,” says Basu. “While backlog is down substantially from its January 2020 level and profit margins remain under pressure, more than half of contractors expect sales to rise over the next six months and nearly half expect to increase staffing levels.

“The anticipation is that the second half of the year will be spectacular for the U.S. economy from a growth perspective, which will help lift industry fortunes as 2022 approaches. But that is not the entire story. There are also public health and supply chain considerations.

“During the COVID-19 pandemic, many contractors experienced repeated interruptions in project work. Acquiring key materials and equipment has also become more difficult, with occasional price shocks for certain commodities. With vaccinations proceeding apace, many contractors will benefit from fewer interruptions going forward and the restart of many postponed projects.”

Abc Construction ConfidenceAssociated Builders and Contractors Construction Backlog Indicator