With federal stimulus funding exhausted and state and local governments shrinking their operating budgets, contractors in New Jersey’s construction industry are continuing to work through their backlogs more rapidly than replacement projects are coming, according to an indicator that reflects the work to be performed by commercial and industrial contractors in the months ahead.
“This data tells us that the recovery in nonresidential construction will continue to be sputtering and sporadic,” said Anirban Basu, chief economist for Associated Builders and Contractors Inc. “Much of New Jersey is suburban, and during this latest economic downturn, New Jersey was impacted much more than anyone could have predicted, and that hit construction the hardest.”
According to Basu, over the last two years, New Jersey’s commercial and industrial construction industry benefited from the federal stimulus package awarded to state governments in February 2009, but now that the stimulus has completed its course, state governments have to rely more on their own tax bases and capital budgets to fund public-sector projects that drive growth in commercial construction.
“There was a sharp increase in the backlog after the recession ended, and with the stimulus package impact going away, the private-sector recovery has not been enough to offset declining public investment,” Basu said. “In construction, the number one sector in year-over-year spending growth is in construction related to manufacturing, but the Northeast is no longer a hub, so it doesn’t feel the effect as much as Southern states. There’s also a lot of investment in energy production, but the Northeast is not as affected by that as Wyoming and North Dakota. There are just no natural gas wells being dug in Trenton.”
According to the latest Construction Backlog Indicator for the first quarter of 2012, the average backlog for commercial and industrial construction dropped from 7.8 months to 7.4 months — a 5.4 percent decrease from the previous quarter.
“When the indicator is growing, contractors can look further into future and know that they can stay busy,” Basu said. “But when it’s shrinking, they tend to get more nervous, and that’s not good for hiring and their cash flows.”