Construction Backlog Shows Positive Growth in Fourth Quarter 2010

Associated Builders and Contractors (ABC) today reports that its Construction Backlog Indicator (CBI) for the fourth quarter of 2010 averaged 7.1 months, up from 7 months in the third quarter of last year – an improvement of 1.4 percent. In addition, CBI is up 21.3 percent from a low of 5.8 months in the fourth quarter of 2009. CBI is a forward-looking indicator that measures the amount of construction work under contract to be completed in the future.

“Today’s backlog numbers are consistent with the pace of recovery in overall nonresidential construction activity,” said ABC Chief Economist Anirban Basu. “However, what we are seeing from the fourth quarter 2010 data is a recovery in the construction industry that is more gradual than the rate of expansion in financial markets and the broader economy.”

Regional Analysis
With investment in power generation and natural resource exploration increasingly taking center stage in the nation’s economic expansion, regions that are more natural resource intensive are likely to experience increases in construction backlog, and eventually in construction spending. This appears to be precisely what is occurring in the South and Middle States.

In contrast, much of the western United States is associated with unemployment and vacancy rates above national averages. Ongoing and serious fiscal issues in a handful of key states also are suppressing nonresidential construction recovery in much of the West, explaining at least in part the sluggish nature of the construction recovery there to date.

Regional highlights include:

– During the past year, construction backlog expanded in all major regions of the country except the West, which posted the smallest average backlog at 5.8 months in the fourth quarter of 2010.

– The South, which includes states such as Louisiana, Oklahoma and Texas, continues to support the largest average construction backlog. In the fourth quarter of 2010, regional backlog averaged 7.8 months, and it is expanding briskly.

– Construction backlog is improving in the Middle States, which include Indiana, Michigan and Ohio. Average backlog has returned to levels above six months.

“The fourth quarter 2010 data shows that the economy is increasingly shifting toward private sector momentum and away from public sector dependence. Though the recovery remains well short of two years in duration, its positive impact on construction is becoming increasingly apparent,” Basu said. “Unfortunately, the outlook is not as bright for contractors that primarily work in the infrastructure segment. As federal stimulus-financed projects wind toward their inevitable conclusion, the expectation is that construction backlog in this category is likely to fall, bolstered by ongoing issues in state and local government finances, which hamstring capital spending.”