High Contractor Confidence Despite Shrinking Backlog

  • Editorial Team
  • Heavy Construction Equipment
  • 18 October 2023

Despite a slight reduction in backlogs, contractors maintain high confidence in the construction industry. From a press release by the Associated Builders and Contractors (ABC), we got some insights about the state of the industry. While backlogs have decreased, profitability and growth remain strong.

Shrinking Backlog

In September, ABC reported a slight reduction in backlogs, with the Construction Backlog Indicator decreasing by 0.2 months from its August value of 9.2 months. Despite this, high contractor optimism can still be seen. Large contractors with over $100 million in revenue experienced the most substantial decline, with a backlog loss of 3.2 months.

Contractor Confidence Remains High

The ABC Construction Confidence Index reveals encouraging signs in sales and personnel levels. While profit margins saw a marginal decline due to reduced backlogs, all three scores remain above the 50-point threshold. This indicates optimism for the industry’s growth over the next six months time.

Economic Challenges Ahead

ABC’s Chief Economist, Anirban Basu, points out several challenges facing the construction industry. These include political gridlock in Capitol Hill, increasing labor costs, increasing construction equipment and materials costs, ongoing supply chain disruptions, and rising financing costs. According to Basu, the U.S. economy may continue to slow down, which could eventually affect construction demand.

Regional Differences in Backlog

Regional differences in backlogs are something to be noted. The South still maintains the longest backlog, despite a drop in the past month. The West is the only region to witness an increase in backlog over the past year.

Importance of Backlog in Construction

A backlog represents the projects a contractor has yet to start. It is something that is necessary for maintaining a steady cash flow, ensuring payments over a predetermined period, and providing a buffer for securing future projects. One thing to note is that having an excessive backlog can also be an issue. It can lead to underbidding, reduced profit margins, and potential financial strain, which your business should avoid, obviously.

Balancing Workload

Balancing workload and financial stability is one of the main jobs when managing a construction company. This involves considering current economic factors, potential recessionary trends, and interest rates. Contractors need to find the right balance between their financial capacity and labor requirements to ensure smooth operations.