Associated Builders and Contractors (ABC) reported its Construction Backlog Indicator (CBI) fell to 8.6 months during the second quarter of 2017, down 4.1 percent from the first quarter of 2017. CBI is up by 0.1 months, or 1.4 percent, on a year-over-year basis.

“Construction backlog was bound to return to Earth in the second quarter,” says ABC chief economist Anirban Basu. “The first quarter of 2017 saw growing backlog for each and every region, industry and company size, which had never occurred in the eight-year history of the series. It should not be viewed as a surprise that backlog shortened modestly in the second quarter.”

Backlog in the commercial/institutional segment slipped to 8.4 months during the second quarter, but that still represents the second highest level for the indicator since the fourth quarter of 2014. The implication is that private commercial construction will remain robust for the foreseeable future.

The healthy performance of private construction markets in New York, Boston and other East Coast markets has helped push the Northeast backlog to 9.7 months, the longest backlog of any region. The second quarter of 2017 represents the first time since the fourth quarter of 2014 that the South has not reported the longest backlog of any region.

During the first quarter, the backlog in the West was up by a remarkable 26 percent, setting the stage for some reversion during the second quarter. The backlog in the West now stands at 6.8 months, the shortest of any region. That is somewhat surprising given the rapid growth that continues to characterize Denver, Seattle, Phoenix, Las Vegas and other hotspots. This may be a reflection of the fierce competition among construction firms in the West, where intense competition has the effect of limiting average backlog per firm.

The backlog in the middle states remains stable and is roughly unchanged on a year-ago basis. Stable commodity prices have helped.

The backlog in the South is meaningfully lower than it was a year ago despite ongoing elevated levels of activity in Atlanta and in several Florida markets. It will be interesting to see how recent hurricanes impact backlog, whether for better or for worse.

“Some contractors had hinted that backlogs may become a bit more erratic after the first quarter due to a combination of growing concerns regarding overbuilding in certain sub-markets in certain cities and weak public construction spending in much of the nation,” says Basu. “Still, backlog data remains elevated by historic standards and remains above its year-ago level. The primary implication is that the construction recovery cycle has not yet begun to wind down in earnest.

“With interest rates remaining low, U.S. and global economies improving and plentiful capital available, private construction activity should remain formidable. However, public construction continues to languish, which has placed a ceiling on backlog throughout the current cycle.”

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