ABC reports a slight decline in its Construction Backlog Indicator (CBI) for May 2024. The indicator, which measures the amount of work that contractors have booked but not yet completed, dropped to 8.3 months, reflecting a 1.2% decrease from the previous month.
This decline interrupts a two-month trend of backlog growth and puts the current backlog level 0.6 months below where it stood in May 2023.
Analyzing the Numbers
The latest survey, conducted between May 20 and June 4, 2024, revealed that backlog decreased across almost all company sizes, except for contractors with annual revenues exceeding $100 million. For these larger contractors, backlog levels actually increased, highlighting a divide in market performance based on company size. Overall, the annual comparison shows a consistent decline in backlog for all contractors over the past year.
Economic Factors at Play
ABC’s Chief Economist, Anirban Basu, pointed out that despite the year-over-year drop, backlog levels have remained relatively stable in 2024. This stability is supported by significant spending in manufacturing and infrastructure-related segments, which has kept many contractors engaged. However, rising input costs have emerged as a new challenge, impacting contractor confidence, especially regarding profit margins.
Contractor Confidence Remains Positive
ABC’s Construction Confidence Index (CCI) provides additional insights into the industry’s outlook. In May, the CCI readings for profit margins and staffing levels dipped slightly, while the sales outlook showed improvement. Despite these mixed signals, all three metrics stayed above the critical threshold of 50, indicating that contractors generally expect growth over the next six months.
The Bigger Picture
Reflecting on the broader economic environment, Basu noted, “Over a year has passed since the Federal Reserve raised the target range of the federal funds rate above 5%. Despite widespread expectations that rates will remain elevated through at least the end of the year, contractors remain confident about the future, with a majority expecting their sales and staffing levels to expand over the next six months.”
Key Takeaways
Current Backlog: The Construction Backlog Indicator fell to 8.3 months in May 2024, down 1.2% from April and 6.7% year-over-year.
Market Segmentation: Contractors with annual revenues over $100 million saw an increase in backlog, while other segments experienced declines.
Economic Influence: Persistent high-interest rates and rising input costs are notable challenges, yet the industry remains stable.
Future Outlook: Despite some dips in confidence regarding profit margins, contractors remain optimistic about sales and staffing growth in the near term.
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