Associated Builders and Contractors (ABC) recently released its Construction Backlog Indicator (CBI) for the fourth quarter of 2011. CBI declined 3.2 percent from the previous quarter from 8.1 months to 7.8 months, but is still up 10.9 percent compared to the fourth quarter of 2010. CBI is a forward-looking economic indicator that measures the amount of nonresidential construction work under contract to be completed in the future.
“Overall, the latest CBI numbers indicate a degree of stalling in the recovery of the nation’s nonresidential construction industry, likely due to a combination of the soft patch that developed in the broader economy early last year, a number of seasonal factors and the winding down of federal stimulus projects,” said ABC Chief Economist Anirban Basu. “But the good news is that given the recent acceleration in economic and employment growth, CBI is positioned to rebound more forcefully during the quarters ahead.
“In addition, the most recent data reflect the ongoing expansion in privately funded construction activity as opposed to the contraction of publicly funded construction,” Basu said. “The nation’s smaller construction firms are gaining an advantage from this shift, in contrast to the decreased construction activity among the larger firms that had benefitted from earlier federal stimulus projects and military base realignment-related construction.”
Regional Highlights
o Construction backlog expanded in the Northeast from the third quarter to the fourth quarter, but declined in the South and West, and was essentially unchanged in the Middle States.
o Construction backlog is higher in every region of the nation compared to one year ago.
o Companies in the South, some of which are located in high-growth states such as Louisiana, Oklahoma and Texas, reported the lengthiest backlog at 8.9 months, up 14.7 percent from the fourth quarter of 2010.
CBI Map of Regions: Fourth Quarter 2010 v. Fourth Quarter 2011
Analysis
“The disparity between regional construction activity is on the rise,” said Basu. “One year ago, the difference in backlog between the South region, with the lengthiest backlog, and the West region, with the shortest backlog, was 1.98 months. During the fourth quarter of 2011, this gap rose to 2.81 months, with the South reporting a backlog of 8.92 months and the West at 6.11 months.
“The South appears to be the region most positively impacted by rebounding nonresidential construction, largely due to its central importance to the nation’s energy industry,” Basu said. “The West continues to deal with many issues, including the impact of weak residential real estate markets and stressed state fiscal conditions, both of which impact the vitality of broader regional economies.”
Industry Highlights
o All industry segments monitored by ABC’s CBI declined in average construction backlog from the third quarter to the fourth quarter, but backlog is up on a year-over-year basis in both the commercial/institutional and infrastructure categories.
o Construction backlog in the commercial/institutional segment fell from 8.4 months in the third quarter of 2011 to 7.8 months in the fourth quarter, but remains 11.4 percent above the level reported one year ago.
o Heavy industrial is the only segment in which construction backlog declined from the same time one year ago. Backlog for this segment fell from 6.6 months in the fourth quarter of 2010 to 5.7 months in the fourth quarter of 2011.
Analysis
“The biggest surprise in the data is the lack of momentum in construction backlog associated with the heavy industrial category,” said Basu. “Manufacturing capacity utilization, or to what extent a nation uses its productive capacity, stood at just 71.4 percent during the third quarter of 2011, down from a typical historic level of more than 80 percent. This implies capacity utilization must rise a bit more before the industry experiences a significant increase in construction backlog.”
Highlights by Company Size
o During the fourth quarter, construction backlog for firms with annual revenue exceeding $100 million declined 3 percent. However, firms in this category continue to report the largest construction backlog among all revenue categories.
o Construction backlog for firms with less than $30 million in annual revenue remained at roughly the same level between the third and fourth quarter, but is up 14.1 percent year over year.
o Construction backlog for firms with annual revenue ranging from $30 million to $50 million increased from 7.3 months to 7.4 months during the fourth quarter.
o In the $50 million to $100 million revenue category, construction backlog declined from 9.7 months to 8.9 months during the fourth quarter, but is still 4.2 percent higher than the fourth quarter of 2010.
Analysis
“The most important finding in this quarter’s report is the growing construction activity taking place among smaller firms,” Basu said. “Early in the recovery, the lion’s share of construction work seemed to favor firms with annual revenues in excess of $50 million. This had much to do with federal infrastructure spending. As the economic recovery has broadened to encompass more construction segments, work has steadily spread to smaller firms – a trend that is likely to continue.”
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