“The average nonresidential contractor starts 2023 with considerable backlog,” said Anirban Basu, chief economist, ABC. “Not coincidentally, contractors also have significant confidence regarding current year prospects, according to ABC’s Construction Confidence Index, which indicates expectations for growth in sales and employment with margins remaining stable.”

November’s construction spending report suggests that this confidence is warranted, said Basu. “However, there are countervailing considerations,” he continued. “First, growth in nonresidential construction spending in November was not especially broad. Much of the growth came from the manufacturing category, which is partially attributable to construction related to large-scale chip manufacturing facilities. The balance of growth came mostly from conservation and development, which includes flood control expenditures. Were it not for those two categories, nonresidential construction spending would have been roughly flat in November.

“Second, backlog could dry up,” continued Basu. “Anecdotal evidence suggests that banks are more cautious in their lending to the commercial real estate and multifamily segments. Fears of recession this year remain pervasive in an environment characterized by high and rising interest rates. It will be interesting to see how well backlog will hold up as contractors continue to build and the economy heads toward what is likely to be a Federal Reserve-induced recession.”