Contractor Backlogs Up; Construction Spending Expected to Increase in 2021

​While COVID-19 is still dominating the headlines around the world, the construction industry still shows pent-up demand in the United States. This morning, the Associated Builders and Contractors (ABC) reported that its Construction Backlog Indicator for October increased 0.2 months from the previous month. While October 2020’s overall backlog of 7.7 months is 1.2 months lower than the October 2019 measure, it remains remarkably stable given the economic uncertainty surrounding the nation. The graphs below display quarterly data. October is the first month for the last quarter of the year, so Q4 is incomplete.

​Let’s dig into the detailed backlogs, starting with the industry sector breakdown for October:

• Commercial & Institutional: 7.5 months (up from 7.4 months in September)
• Heavy Industry: 7.6 months (down from 8.4 last month)
• Infrastructure: 9.1 months (up sharply from 7.4 in September)

​The overall quarterly numbers are represented below at the close of the first month of Q4:

​Turning to geographic area, there seems to be a bit of give-and-take with two regions up and one down sharply and one holding fairly steady:

• Middle States: 6.3 months (down from 6.7 months in September. Steady but slowly declining since July)
• Northeast: 8.4 months (up nicely from 7.4 months in September)
• South: 8.4 months (sizeable decrease from 9.5 last month)
• West: 8.3 months (a steep increase from September's 6.3 month backlog)

​The quarterly trends through the first month of Q4 are shown in the figure below:

​Last are backlog data by contractor size:

• <$30 million: 7.4 months (up from 6.9 months in September)
• $30-$50 million: 7.6 months (a substantial decrease from 10.3 last month)
• $50-$100 million: 7.8 months (up modestly from September’s 7.2)
• >$100 million: 10 months (basically flat compared to September’s 10.1)

​Also in the news today is Dodge Data & Analytics reporting that its 2021 Construction Outlook is pointing to $771 billion in construction starts, a 4% increase from last year. Dodge is expecting a drop in multi-family construction of 1%. This is more likely a sign of that superheated segment coming to the end of its cycle than the negative affects of COVID-19. The other sectors expected to see declines are predictable: retail and hotels. Institutional and public sector construction are predicted to be basically flat or see modest gains, which is also expected given that government aid is uncertain, a trend likely to continue with COVID-19 and the possibility of future gridlock between the Executive Branch and Congress. Manufacturing is also expected to be flat. Private construction is expected to increase with the usual suspects leading the way. Warehouses and data centers are expected to increase 5% as the FAANG companies (Facebook, Amazon, Apple, Netflix and Google) and their smaller peers continue to dominate while utilities are expected to increase a whopping 35% due to expected starts liquid natural gas exporting facilities and wind farms.