Construction industry leaders’ confidence decreased in October amid supply chain issues, high materials prices and labor shortages, according to www.abc.org.
Two of the three components fell in October, and profit margins dropped below the diffusion index threshold of 50.
In October, the Associated Builders and Contractors’ Construction Confidence Index decreased from 51.6 to 48.9 for profit margin expectations and 60.7 to 59.7 for sales expectations. The index increased from 58.9 to 59.2 for staffing levels.
Additionally, ABC’s Construction Backlog Indicator rose from 7.6 months in September to 8.1 months in October.
“After declining for two months, nonresidential construction backlog bounced back in October,” said ABC Chief Economist Anirban Basu. “But some of the renewed momentum appears to be at the expense of profit margins. ABC’s Construction Confidence Index indicates that the average contractor expects profit margins to dip over the next six months. The implication is that contractors are finding it difficult to pass along all the cost increases caused by higher materials prices.
“The good news is that demand for construction services remains elevated despite weaker economic growth and a stalled federal infrastructure package,” Basu continued. “With interest rates low and liquidity high, many investors are seeking positive rates of return through investment in real estate and new construction. Partially as a result, contractors continue to expect sales and employment to grow in the near term. It may be that many project owners have adjusted expectations about construction costs and are ready to move forward despite them. If that stays true, backlog should continue to rise from current levels.”