Construction Backlog Lessens As New Work Slows

How many signs does it take to know that the commercial real estate industry is slowing? For those optimists out there, another important one has emerged, from a highly reliable source. The Associated Builders and Contractors. The trade association with more than 22,000 commercial contractors and construction-related firms has reported that its Construction Backlog indicator declined to 8.7 months last month, according to a member survey conducted between March 20 and April 3 of this year.

The backlog, which slipped in March, is now at its lowest level since last August, and down on a monthly basis in every region except for the South. That area continues to be associated with elevated levels of current and future construction activity as people migrate there for its warm weather, good job market and in some cases its affordability.

There’s also other news—good and bad—worth considering for other industry areas, which indicate how in flux this sector of real estate and the economy is. ABC’s Construction Confidence index reading for sales moved higher last month, though readings for profit margins and staffing levels fell. All three remain above the threshold of 50, indicating expectations for growth over the next six months. “The deceleration in nonresidential construction activity may have started,” says ABC Chief Economist Anirban Basu. “With widespread fears of recession, credit conditions tightening and more decision-makers turning their attention to cost containment, new construction work may be more difficult for contractors to line up.”

Also, the confidence and backlog data weakened in March, which indicates slower activity but not a shift into reverse, Basu says. And the reason, he says, is a belief that financial conditions are tightening after the failures of the Silicon Valley and Signature banks. “To the extent that this is true, one could anticipate further slowing and less industry confidence during the months ahead,” he says. But that could swing back, too, depending on what other signs emerge.