ABC's May Construction Backlog Indicator increases modestly

Associated Builders and Contractors (ABC) has reported that its Construction Backlog Indicator (CBI) expanded to 8.9 months in May 2019, up 0.2 months, or 2.2 percent, since April 2019, when the CBI stood at 8.7 months.

The CBI is a forward-looking national economic indicator that reflects the amount of work that will be performed by contractors in the months ahead.

“Nonresidential construction spending continues to be a significant source of economic strength in America, and the latest Construction Backlog Indicator strongly suggests that nonresidential construction spending will continue to be a major driver of business revenue growth and employment,” says ABC Chief Economist Anirban Basu. “Despite concerns about the rising costs of material prices and labor impacting construction contracts, demand for nonresidential construction services remains elevated for now.

“In general, nonresidential construction spending patterns lag the broader economy by 12-18 months. While nonresidential construction doesn’t keep pace with other industry segments during the early stages of an economic recovery, it can continue to see robust growth during the late stages of an economic expansion. With the economy continuing to demonstrate momentum along the dimensions of financial market performance, job creation, income growth and consumer spending, contractors can expect several additional quarters of spending growth.

“That said, infrastructure backlog declined sharply in May, which is likely a statistical aberration.  The infrastructure category is dominated by several very large firms, and changes in their idiosyncratic backlog can have major impacts on the overall reading. There is little reason to expect a meaningful dip in infrastructure spending in the near term given the improving financial health of many states and localities across the nation. Moreover, backlog in the commercial/institutional and heavy industrial segments rose in May. Several construction firms specializing in heavy industrial construction in the Midwest report substantial increases in construction backlog.”