Nonresidential construction work under contract grew in the West for the second quarter of 2012, but is still down from a year ago, according to the latest Construction Backlog Indicator released earlier this month by the Associated Builders and Contractors.
The quarterly report showed an average of 7.50 months of backlog in the Western region, up from 6.57 months in the first quarter but down from 7.94 months in the second quarter of 2011.
“The Western economy is very volatile,” Associated Builders and Contractors Chief Economist Anirban Basu said. “There have been times when projects have moved forward, and there are times projects have been put on hold because of funding, so backlog drops.”
Looking at second-quarter backlog data since 2009, the following year's second quarter was higher than the previous one, except when comparing 2011 with 2012. There was 6.37 months of backlog in 2009; 7.33 months in 2010; and 7.94 months of backlog in the West in 2011.
“The effects of the stimulus package of 2009 included [mainly] construction of roads and infrastructure, dams and levees,” Basu explained. “So what we saw in California in 2010 for instance was that contractors were landing large projects, so backlog grew rapidly … and now those projects are being completed and there are no public or private projects to offset the finished work.”
The ABC Construction Backlog Indicator is compiled with an average of 400-500 ABC member firms surveyed, each with a minimum annual revenue of $6 million.
When compared to the other three regions in the United States, the West had the second highest backlog after the South, which reported 8.75 months. The Northeast had a backlog of 7.28 months, and the Midwest was at 6.73 months.
In addition, the West registered the largest quarterly gain among the four regions, when comparing first and second quarters of this year. The South was the only region to have a decrease in backlog from the first to the second quarter.
Overall in the second quarter of this year, construction backlog is averaging 7.72 months across the United States, an increase from 7.40 months in the first quarter, but down from 8.06 months at this time last year.
Basu said this shows the broader economic softness experienced during the first half of 2012, as well as a flattening of the nation’s nonresidential construction recovery.
“While there is pent-up demand for new construction in the power, manufacturing and infrastructure segments, the level of economic and political uncertainty remains far too elevated to permit more aggressive nonresidential construction spending recovery in the near term,” Basu added.
During the second quarter of 2012, the average construction backlog rose for all monitored industry segments after declining the two previous quarters.
Infrastructure projects were in highest demand with 10.08 months, followed by commercial and institutional projects at 7.78 months, then heavy industrial at 5.92 months.
When compared to a year ago, infrastructure projects were at 7.88 months, commercial and institutional sector projects were at 8.63 months, and heavy industry projects were at 5.38 months.
“Progress in the commercial and institutional category may be a bit slower in the near future,” Basu said. “Spending continues to be hamstrung by a combination of weak investment returns and cautious financiers. However, the data indicates gradual increases in construction spending in this sector in the coming months.”
Construction backlog for the largest construction firms, which have revenues over $100 million, increased slightly during the second quarter to 9.62 months, from 9.14 months in the first quarter.
Firms with income between $50 million and $100 million also had backlog increase close to 10 months, going from 8.87 to 9.78 months from the first to second quarter of this year.
Companies with annual revenues in the $30 million to $50 million category saw a slight decrease in construction backlog from the first quarter, but remain above nine months for a second consecutive quarter, going from 9.33 to 9.14 months.
Backlog among firms with less than $30 million in annual profits was below seven months for the second consecutive quarter, coming in at 6.89 months in the previous quarter.
“For several quarters, much of the improvement in backlog had been among smaller firms,” Basu said. “However, much of the expansion in the second quarter occurred among larger firms as a result of improved construction spending dynamics in the infrastructure and heavy industry categories.”