ABC: 2Q Construction Backlog Rises But Building Recovery May Chill
Washington, D.C.-based Associated Builders and Contractors says its measure of the nation's construction industry backlog rose 10% in the second quarter to an average of 8.1 months, up from 7.3 months the previous quarter. ABC's Construction Backlog Indicator (CBI) is 12% higher than a year ago, and backlog has expanded in all regions, particularly in the South in which project orders rose 1.87 months during the quarter compared to a year ago, the trade group says. The Northeast, however, posted the smallest gain, 0.04 months, from the same period last year.
ABC expresses caution about the overall rise in activity, saying that it may indicate economic momentum that existed several months ago, which may begin to weaken.
"The U.S. economy continues to be pummeled with a sea of constraining factors ranging from rising gas and food prices, to Washington's stalemate on lowering the nation's deficit, the downgrade of the U.S. credit rating, Europe's growing financial crisis and the U.S. financial market turmoil," says Anirban Basu, ABC chief economist. "Though average construction backlog has been on the ascent in recent months, future surveys are likely to reflect a reversal of the trend and may lead to a chill in the nation's building recovery."
Quarterly backlog growth was fueled by the commercial/institutional building sector, which increased its backlog to 8.6 months in the second quarter from 7.3 months in the first quarter. Backlog in the infrastructure sector has declined for four consecutive quarters, likely the result of the steady decrease from the impact of the stimulus package enacted in February 2009, ABC says. The heavy industry sector's backlog also dropped 18% during the second quarter following three quarters of stable activity, the group adds.
Breaking out backlog by size of company, the CBI report shows an increase for firms with revenues below $100 million. "With many large infrastructure projects winding to a close, the largest firms in ABC's sample have predictably experienced some decline in average monthly construction backlog," Basu says.
Average construction backlog was highest, at 9.8 months, among firms with revenues between $50 million and $100 million. Average backlog rose during the second quarter to 7.5 months, from 6.4 months, among firms with revenues of less than $30 million.
"The broadening of the economic recovery during the period prior to the second quarter of 2011 helped support smaller firms, many of which are subcontractors that work on commercial and institutional projects," ABC says. With the economy weakening in recent months, construction backlog among these smaller firms may begin to decline again, it adds.
Meanwhile, Hill International in Marlton, N.J. reported record-breaking total backlog for its second quarter ended June 30, to $2.297 billion, up from $789 million during the first quarter. Hill cites $1.5 billion in added backlog resulting from two contracts signed during the quarter related to a major housing development in Iraq.
Hill also reported revenues in the second quarter, up 17.3% to $126.9 million, but operating profits down 80.6% to $824,000 compared to the same year-ago period. "Despite a small loss, we saw significant improvements in our business during the second quarter due to a substantial increase in our workload plus the results of our cost-cutting efforts," says Irvin E. Richter, Hill's chairman and chief executive officer. He adds that he expects this trend to continue into the second half of 2011.