Insights

Construction Backlog Drops as Concerns About Financing Mount

Written by Baldwin CPAs | 2/27/23 10:15 PM

The construction industry has been one of the hardest hit by the economic downtown as concerns around financing, worker shortages, and a weak economic outlook loom. However, according to a recent report by Associated Builders and Contractors (ABC), contractor confidence rebounded in January to the highest we’ve seen since the first half of 2022.

Despite a decline in January, the construction backlog remains one month higher than in January 2022 and 0.1 month higher than in February 2020, just before the COVID-19 pandemic hit.

The report also revealed that the construction industry added 25,000 jobs in January, but an estimated 546,000 workers would be needed to meet demand in 2023. Meanwhile, the construction unemployment rate rose to 6.9% in January, higher than the overall unemployment rate of 3.4% for the same month.

With the ongoing possibility of a recession, the Federal Reserve may maintain higher borrowing costs for a longer period, leading to lower backlogs and contractor confidence levels, particularly for privately financed projects. Experts caution that the outlook may dim later this year, setting the stage for a weaker 2024 in construction segments that are primarily privately financed.

Despite these challenges, the ABC report also highlighted that the construction confidence index for sales, profit margins, and staffing levels all increased in January. The three readings indicate expectations of growth over the next six months, with the staffing category having the highest nominal value, suggesting that contractors are confident about increasing their payroll ranks in the next six months.