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Backlogs Increasing for Construction Contractors

Article-Backlogs Increasing for Construction Contractors

Alan SCHEIN / Alamy Stock Photo Cement trucks on an interstate.
The rise in backlogs is described as “remarkable” and “unexpected” in a recent industry report.

If you’re experiencing higher levels of backlog you’re not alone. A recent report from Associated Builders and Contractors revealed that backlogs for construction contractors are now at their highest point since the second quarter of 2019.

The ABC report, known as the “Construction Backlog Indicator,” showed that backlog has increased by almost a month on average for contractors year-over-year.

“The increase in backlog observed in November is largely attributed to contractors with under $30 million in revenue, which now have their highest level of backlog in over three years,” the ABC stated in a summary of the report.

Backlog increased the most for contractors in the South, according to the report. Southern contractors, on average, are experiencing a backlog of almost a year (11.5 months). By comparison, the region with the second highest backlog in the report was the Northeast (8.6 months on average). The only region to see a slight decrease in reported backlogs was the Midwest (7.8 months), according to the report.

“The rise in backlog is remarkable and unexpected,” said ABC Chief Economist Anirban Basu in a release from the organization. “A number of contractors have been reporting that their backlog has risen rapidly over the past three months, which is counterintuitive given the pervasive view that the broader economy is headed into recession.” Basu said the backlog was “particularly sharp in the commercial and institutional category.

“Health-care-related construction has emerged as a major driver of new activity,” Basu said.

It seems unlikely that backlog will hold up in the face of the Federal Reserve’s efforts to slow demand by raising interest rates, he said. “Many predicted that backlog would have dipped by now and that has yet to transpire,” he added. “What’s more, many contractors expect sales and staffing levels to climb over the next six months, while profit margins are projected to remain stable.”

The ABC’s Construction Confidence Index reported staffing level and profit margin expectations increased in December’s report. Meanwhile, expectations for sales were down.

According to the ABC, the readings show expectations of growth over the next six months.

The Construction Backlog Indicator quantifies the previous month’s work under contract based on the latest financials available and the Construction Confidence Index measures contractors’ outlook for the next six months, according to the ABC.

The December reports, which analyzed November 2022 numbers, showed an increase month-over-month in the number of respondent contractors who believe their profit margins will be up big over the next six months—2.7% in November versus 2.4% in October. In November 2021, 7.4% of respondents believed they’d be down big, according to the report, while the number of respondents who believed they’d be up big was the same as this year (2.7%).

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