Contractor Optimism Builds

WASHINGTON, DC — Associated Builders and Contractors reported today that its Construction Backlog Indicator rebounded to 8.0 months in August, an increase of 0.2 months from July’s reading, according to an ABC member survey conducted Aug. 20-Sept. 1. The August backlog is a half-month lower than in August 2019.

ABC’s Construction Confidence Index readings for sales, profit margins and staffing levels expectations all increased in August. Sales expectations rose above the threshold of 50, indicating expectations of expansion over the next six months. Contractors expect their profit margins to shrink during that time period, but are more optimistic compared to July. Staffing level expectations increased, with only 23% of contractors expecting to cut positions during the next six months. 

• The CCI for sales expectations increased from 47.2 to 53.0 in August.
• The CCI for profit margin expectations increased 42.7 to 47.8.
• The CCI for staffing level expectations increased 50.6 to 54.4

“The construction backlog and confidence indicators both surprised to the upside in this report,” said ABC Chief Economist Anirban Basu. “Prior to August, the message emerging from these leading indicators was unequivocally negative, with contractors collectively indicating sharp declines in backlog and an expectation that both sales and profit margins would shrink in coming months. While there are many reasons to believe that the months ahead will present challenges for nonresidential construction—including tighter credit conditions, weak state and local government finances and elevated commercial vacancy rates—the August data provided a much-needed respite from gloom and doom.

“Backlog and confidence are likely to be volatile during the month ahead,” said Basu. “Many projects have been postponed, yet if they are quickly brought back to life as economic recovery persists, backlog could begin to rise. However, there is the possibility that many project postponements will eventually become cancellations, impacting both backlog and contractor confidence. For now, the expectation is that sales and industry employment will climb over the next six months, but that profit margins will remain under pressure.”   

Note: The reference months for the Construction Backlog Indicator and Construction Confidence Index data series were revised on May 12, 2020, to better reflect the survey period. CBI quantifies the previous month’s work under contract based on the latest financials available, while CCI measures contractors’ outlook for the next six months.

Click here for historical CCI and CBI data and here for methodology. Visit abc.org/economics for the CBI and CCI reports, plus analysis of spending, employment, GDP and the Producer Price Index.