Backlog signals increase in construction activity

Anirban Basu

A measure of pending construction activity in the United States has increased, but uncertainty continues to hamper recovery in the industry.

The Associated Builders and Contractors reported that its Construction Backlog Indicator (CBI) grew to eight months for the third quarter, a 3.5 percent increase. The CBI measures the amount of nonresidential construction work under contract to be completed in the near future.

The latest gain signals construction spending likely will accelerate by the middle of 2013, said Anirban Basu, chief economist of the ABC, a national trade association.

That projection assumes, however, the country doesn’t go over a so-called “fiscal cliff” of tax increases and government spending cuts scheduled to take effect at the beginning of the year — or the economy returns to recession as a result.

“Another recession would undermine the momentum of an already struggling construction industry,” Basu said. “The recovery in construction backlog, and in overall construction spending, would likely be more rapid today if not for the elevated level of uncertainty facing economic decision makers.”

There’s also a possibility construction projects postponed in 2012 because of uncertainty will resume in 2013, Basu added.

For the third quarter, the CBI rose in commercial, industrial and institutional categories. The CBI fell in the infrastructure category, however.

Geographically, a west region that includes Colorado reported the longest construction backlog at nearly nine months, an increase of more than 1.5 months from the third quarter of 2011. Backlogs also increased in the middle states and northeast regions during the third quarter of 2012 while decreasing in the south region.

The construction backlog increased across all company size categories, although smaller firms with less than $30 million in annual revenues continue to struggle, Basu said.

“What the CBI data tells us is certain industries and geographies will be associated with more robust construction spending recovery, including segments related to energy generation, health care and infrastructure,” Basu said. “CBI dynamics also seem to suggest the latter half of 2013 may be associated with more rapid growth in construction spending than the first half of the year.”