Construction Backlog Rebounds in October; Contractor Optimism Rises

WASHINGTON (November 10, 2020)—Associated Builders and Contractors reported that its Construction Backlog Indicator rebounded to 7.7 months in October, an increase of 0.2 months from September’s reading, according to an ABC member survey conducted from October 20 to November 5. Backlog is 1.2 months lower than in October 2019.

ABC’s Construction Confidence Index readings for sales, profit margins and staffing levels increased in October. Sales and staffing index readings remained above the threshold of 50, indicating expectations of expansion over the next 6 months. For profit margins, this is the eighth consecutive month of decreasing readings.

“Given political uncertainty, surging COVID-19 infections, a lack of additional stimulus, diminished state and local government tax revenues, tighter lending conditions and poor commercial real estate fundamentals, nonresidential contractors remain surprisingly upbeat,” said ABC Chief Economist Anirban Basu. “Both sales and staffing levels are expected to climb over the next six months. While profit margins are expected to slip, only 6% of contractors expect a large decline in margins. Backlog was down in October from the same time one year ago but up for the month, further indicating a level of industry stability that was not fully anticipated.

“While these remain treacherous times, nonresidential contractors can anticipate a better future, at least eventually,” said Basu. “Further stimulus seems likely, including additional monies for infrastructure. Large tax hikes now seem unlikely, helping to explain a surge in stock values despite incomplete information on election outcomes. Interest rates remain low, and the Federal Reserve remains accommodative. Moreover, most economists expect a significant rebound in economic activity in 2021, especially after winter’s end. That will set the stage for an eventual recovery in commercial construction spending.”