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Construction metric indicates strong economy

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The Associated Builders and Contractors’ (ABC) reported that the Construction Backlog Indicator (CBI) set a record as it expanded to 9.45 months during the third quarter of 2017, up 9.8 percent from the second quarter to the longest backlog reading in the eight-year history of the series. CBI is up by 0.8 months, or 9.2 percent, on a year-over-year basis.

 

CBI is a leading economic indicator that reflects the amount of construction work under contract, but not yet completed. CBI is measured in months, with a lengthening backlog implying expanding demand for construction services.

“The latest backlog reading strongly suggests the post-2009 economic recovery is picking up steam and that the current construction spending cycle, in place since early 2011 for many contractors, is not on the verge of concluding,” said Chief Economist Anirban Basu. “Indeed, if anything, the CBI indicates that nonresidential construction firms are becoming busier due to a confluence of factors, including growing business confidence over the past year and a recent rise in energy prices, which is supporting more investment among energy explorers, producers and distributors.

“With economic growth picking up recently, interest rates staying low, asset prices remaining high and confidence elevated among consumers and businesses alike, the nonresidential construction cycle stands to get even hotter in the near term. That should represent a source of joy to contractors, but undoubtedly many are unnerved by growing pressures to secure suitably trained craftspeople who can support on-time, on-budget project delivery. The upshot is that wage pressures will continue to build in the U.S. construction industry. However, based on the most recent CBI, increasing delivery costs have not yet begun to meaningfully slow the nonresidential construction sector’s ongoing expansion cycle.”

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Write to the Editorial Department at editorial@njbiz.com.

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