Construction Spending Is Up, But Contractors Lack Confidence

Costs may be high and labor short, but contractors are still planning projects, further driving up construction spending on an annual basis.

Dodge Construction Network's Momentum Index, a monthly measure of nonresidential building projects in the planning stages, increased slightly in June to 173.6, pushing the metric to its highest level since 2008. The index measures how much the number of projects fluctuates from the level seen in 2000, which is the baseline year for the index, equivalent to 100.

The index is also 9% higher than June 2021. An increase in warehouse projects led commercial planning in June, while most other commercial buildings were flat, the company reports. 

Construction spending flatlined over the month in May as single-family homebuilding stalled, according to the U.S. Commerce Department, down 0.1% from April. Year-over-year, however, spending was up 9.7% in May.

Associated Builders and Contractors reported that construction backlogs dropped slightly in June, coming in at 8.9 months, according to a member survey. The reading is up 0.4 months from June 2021.

The organization further reports that contractor confidence slipped a bit last month, with expectations for sales, profit margins and staffing all down. Only profit-margin confidence is less than 50 on ABC's Construction Confidence Index, indicating that more contractors are expecting lower profit margins ahead.

“Several months ago, there was conjecture that contractors were generally too upbeat regarding their collective future,” ABC Chief Economist Anirban Basu said in a statement. “Increasingly, the data suggest that they were."

For months, contractors expected sales, employment and margins to expand, Basu said. Now, to secure work and to induce project starts, a growing number of contractors are trimming margins.