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Construction Backlog Causes Some Concern
Shrinks to 8.9 Months

Construction Backlog Causes Some Concern

Regionally, the backtracking backlog in the Northeast can be blamed on "growing concerns regarding overbuilt commercial segments," according to Associated Builders and Contractors chief economist Anirban Basu. The middle of the country is "beginning to feel the effects of an auto production cycle that may have peaked," but the South performed better thanks to rapid population growth in major markets there.

Associated Builders and Contractors just released the fourth quarter results for its Construction Backlog Indicator, and it showed a 1.1 percent drop from the previous quarter, but even more significantly, a 7.5 percent decline year over year. For comparison's sake, the report reached a record high of 9.9 months in the second quarter of 2018, but the final quarter came in at 8.9 months.

This forward-looking economic indicator helps forecast the amount of work available in commercial, institutional, industrial and infrastructure construction in the U.S. in the months ahead. In spite of the recent contraction, the numbers are still seen to be strong.

"Though backlog has dipped slightly in the last quarter of 2018, it remains high by historic standards," said ABC chief economist Anirban Basu. "A number of factors contributed to the decline, including a surge in materials prices in early 2018, which likely hindered project planning and contract negotiations later in the year. Interest rates also rose during much of the year, potentially resulting in some projects being postponed or canceled. It is also likely that the feverish market volatility during the fourth quarter of 2018 caused some investors to hold off until the financial marketplace stabilized, which it recently did."

Not all results were lacking as the heavy industrial segment's backlog in the fourth quarter was actually slightly higher compared to the previous quarter's.

"In fact, with industrial production surging for much of last year and with capacity utilization on the rise, the industrial category achieved its highest level in the history of the series during the final quarter of 2019," Basu stated.

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August 18, 2019, 3:13 pm PDT

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