WASHINGTON, DC - March 2021 — Associated Builders and Contractors reported last week that its Construction Backlog Indicator rose to 8.2 months in February, according to an ABC member survey conducted from Feb. 22 to March 3. This is up 0.7 months from January’s reading, but is still 0.7 months lower than in February 2020.
ABC’s Construction Confidence Index readings for sales, profit margins and staffing levels also increased in February. All three indices are now above the threshold of 50, indicating expectations of growth during the next six months, but below February 2020 levels.
“The expectation that rapid economic recovery could begin later this year has now swept through the nonresidential construction sector, which is surprising, as I anticipated this segment would be less upbeat,” said ABC Chief Economist Anirban Basu. “After all, commercial real estate fundamentals have been compromised by behavioral and policy shifts motivated by the COVID-19 pandemic. Public finances have also been affected negatively, which could diminish demand for construction services going forward. Rapidly rising materials prices are also creating concern, as they would have a tendency to further squeeze industry profit margins," he added.
- Click here for a short video from ABC’s chief economist on the latest survey data.
Note: The reference months for the Construction Backlog Indicator and Construction Confidence Index data series were revised on May 12 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.
INFLATION FEARS
On March 12, ABC also reported that construction input prices rose 2.1% in February 2021, according to its analysis of new U.S. Bureau of Labor Statistics’ Producer Price Index data. Nonresidential construction input prices also increased 2.1% for the month.
Construction input prices are up 7.6% from February 2020, and nonresidential construction input prices have expanded 7.1% during that span. Softwood lumber and natural gas have experienced the largest year-over-year increases, rising 79.7% and 76.2%, respectively. Prices in the iron and steel category increased 22.0% compared to the same time last year, and steel mill product prices are up 20.0%.
“Anyone who questions whether or not the inflation story is real should look at today’s Producer Price Index,” said Basu. “Input prices are rising rapidly even in the midst of the global COVID-19 pandemic that continues to suppress economic growth in many parts of the world, including Europe and Latin America. If anything, these conditions should create flat prices, but the injection of massive levels of monetary and fiscal stimulus into the global economy, along with occasional supply chain issues, have produced a nearly 8% rise in construction input prices over the past year," he added.
“As vaccinations become more pervasive around the world, additional stimulus is injected into various economies, and the global economy reopens in earnest, the pace of price increases could further accelerate,” warned Basu. “According to ABC’s Construction Confidence Index, only 36% of contractors expect their profit margins to increase over the next six months. Meaningful inflation would almost certainly lower that share. ABC is indicating to its members that they should be very careful in crafting their contracts, given the risk of future materials price increases. The risk is real. Today’s data release does nothing to alter that prescription.”
Visit abc.org/economics for the Construction Backlog Indicator and Construction Confidence Index, plus analysis of spending, employment, GDP and the Producer Price Index.