Nonresidential Construction Activity Positioned to Expand in 2013
Associated Builders and Contractors (ABC) today reports that its
Construction Backlog Indicator (CBI) expanded for the second consecutive
quarter, up to 8 months in the third quarter of this year, a 3.5 percent
increase from the previous quarter. CBI is measured in months and
reflects the amount of construction work under contract, but not yet
completed.
“While the nation’s nonresidential construction activity is likely to
remain subdued as we approach the final months of 2012, the CBI is
signaling that nonresidential construction spending will accelerate by
mid-2013,” said ABC Chief Economist Anirban Basu. “However, this
presumes the nation does not tumble over the fiscal cliff—a series of
spending cuts and tax increases that kick in at the end of the year.
“Another recession would undermine the momentum of an already struggling
construction industry,” Basu said. “The recovery in construction
backlog, and in overall construction spending, would likely be more
rapid today if not for the elevated level of uncertainty facing economic
decision-makers.
“What the CBI data tells us is certain industries and geographies will
be associated with more robust construction spending recovery, including
segments related to energy generation, health care and infrastructure,”
said Basu. “CBI dynamics also seem to suggest the latter half of 2013
may be associated with more rapid growth in construction spending than
the first half of the year.”
Regional Highlights
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The Northeast, Middle States and West regions experienced expansion in
construction backlog during the third quarter. These regions also saw
year-over-year growth in backlog.
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The West region now records the lengthiest backlog, due in part to the
rapid recovery in California, Arizona and Washington.
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The South region has experienced declining backlog for four
consecutive quarters.
Analysis
“The CBI indicates the West region is racing back,” said Basu. “Better
economic performances in markets such as San Jose, Los Angeles, Seattle,
Phoenix and Las Vegas have positioned the West to enjoy surprisingly
strong backlog recovery during the past three quarters. These markets
appear to be driven by a combination of strong demand for technology,
rising levels of consumer spending and stabilizing housing markets.
“Gradual recovery characterizes the Middle States region, though certain
communities such as energy-rich North Dakota, economically vibrant
Minnesota and states with rebounding auto manufacturing sectors like
Indiana are experiencing faster construction spending growth,” Basu
said. “In contrast, construction activity in the South has waned, due in
part to significant slowing in industrial production, softness in the
economies of Alabama and Mississippi, and low natural gas prices, which
has impacted energy-related investment.”
For Regional trend data, go here.
Industry Highlights
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In the third quarter, construction backlog rose for all three
industrial segments except for infrastructure, a category in which
measured backlog is virtually equal to a year ago.
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Backlog for the heavy industrial category expanded by four-fifths of a
month during the third quarter and now stands at 6.73 months. Backlog
in this category has not been this high since the second quarter of
2010.
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Backlog in the commercial and institutional category rose for a second
consecutive month, spurred by ongoing increases in consumer spending
and renewed expansion plans among several key retailers.
Analysis
“The infrastructure category is the most susceptible to the impending
fiscal cliff,” said Basu. “It is the only category that did not
experience rising backlog during the third quarter.
“With the exception of the commercial construction category, average
backlog among construction firms is roughly the same as two years ago, a
reflection of just how soft the nonresidential construction recovery has
been for many contractors,” Basu said. “The presumption is that progress
will continue to be gradual during the initial quarters of 2013, but
there is a possibility many projects postponed in 2012 due to elevated
levels of uncertainty will come back online next year, spurring more
rapid overall nonresidential construction recovery during the second
half of 2013.”
For Industry trend data, go here.
Highlights by Company Size
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Construction backlog rose across all company size categories, with
firms reporting annual revenue between $30 million and $50 million
registering the largest quarterly gain of 1.8 months.
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CBI data indicate specialty trade contractors with annual revenues in
excess of $30 million have experienced the greatest improvement.
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Firms with annual revenues of less than $30 million continue to
struggle; this is the only segment with construction backlog below
year-ago levels.
Analysis
“Backlog rose for all size categories during the third quarter,” said
Basu. “Part of this may be explained by the failure of competitors,
which positions survivors to expand market share and backlog.
“In general, larger firms, which tend to have more solid banking and
insurance relationships, appear best positioned to gain market share by
taking on larger projects,” Basu said. “The fragile nature of smaller
firms may help explain why these contractors are alone in terms of
experiencing a year-over-year decline in average backlog.”
For Company Size trend data, go here.
To read more about the latest CBI, click here.
Associated Builders and Contractors (ABC) is a national association with
74 chapters representing merit shop construction contractors and
construction-related firms. Visit us at www.abc.org.
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