Construction Backlogs at Record Highs in Q2

The Construction Backlog Indicator produced by Associated Builders and Contractors (ABC), Washington, DC, expanded to a record 9.9 months during the second quarter of 2018. Backlog is up 12.2% from the first quarter and 14% compared to the same time last year, ABC said in a release.

“Construction backlog has never been higher in the history of this series,” said ABC Chief Economist Anirban Basu. “While contractors collectively reported a higher backlog, it was the industrial contractor segment that had the largest increase in the second quarter. With industrial production rising and factory capacity utilization recovering, there is more demand for both improved and new industrial space. This was especially apparent among contractors in the southern United States, where backlog stands at 11.2 months and has increased 2.2 months over the past year.  

“The disproportionate role played by technology companies in creating economic growth is also apparent in the data,” said Basu. “Contractors operating in tech-laden communities like San Jose, Calif.; Seattle; Portland, Oregon; Provo/Salt Lake, Utah; and elsewhere continue to report very strong backlog. Given announcements of new, large-scale data centers and tech campuses, technology is positioned to be an ongoing driver of demand for construction services.

Backlog in the commercial/institutional segment rebounded during the second quarter, increasing to 10.1 months. Backlog in this segment is up more than 20% from the second quarter of 2017. ABC said this turn is remarkable given expectations prevailing a year ago. Back then, many worried that a number of commercial segments had become overbuilt, at least in certain geographies. This suggested that backlog was vulnerable, with fewer new projects moving from the drawing board to construction. Instead, the accelerated growth of the U.S. economy has further bolstered demand for commercial space, driving up the segment’s construction backlog in the process.

Backlog in the heavy industrial category reached an all-time high of 7.8 months during the second quarter, a testament to the ongoing expansion of industrial production in the United States. Construction spending related to manufacturing had declined in recent years but exhibited growth during the second quarter. Tariffs, potential trade wars and rising input prices remain risks to this segment’s near-term outlook, ABC said.