Construction Industry Forecasts

The spring rise in construction work backlogs is consistent both with the small gain in spring construction spending reported by the Census Bureau and with the value of starts pickup reported by Reed Construction Data in May and June. The slimmed down contractors that survived the recession are now operating with a backlog of work in the low end of the average range.

The plunge in economic growth from the 3% level to less than 1% early in 2011 has not yet caught up with construction starts or forced delays or cancellations in projects already started. But this is inevitable during the summer quarter even though aggregate spending in the economy appears to have partially recovered since mid-June.  Construction work backlogs are expected to be steady or slightly lower in the summer quarter.

The ABC survey also reported that backlogs were the highest and showed the most growth in the South. This is not surprising. The South was the more vibrant construction region before the recession and has resumed the same position. Backlogs were the lowest in the Midwest although they are now increasing modestly in an environment with high vacancy rates and constrained public finances.

Backlogs in the commercial/institutional building sector jumped from 7.3 to 8.6 months. More private work was fueled by improved net operating profit prospects for buildings intended to be leased.  More public and institutional work was fueled by the tail end of the stimulus program. However, backlogs dropped 18% from the first quarter for heavy (nonbuilding) projects. This was due to the early phase out of infrastructure stimulus funds, the failure to boost federal funding and spending cutbacks at by state and local governments.