Contractor confidence rebounded in January despite labor shortages, rising costs and forecasts predicting an economic downturn, says Anirban Basu, chief economist for the Associated Builders and Contractors.

ABC’s Construction Confidence Index for January shows more contractors expecting growth in sales, profit margins and staffing over the next six months compared to December. Still, those expectations, based on surveys of nonresidential contractors and calibrated on a 0-100 scale, were still slightly down from a year earlier. Basu says January's readings are the highest since the first half of last year.

“Given the recent employment report, the U.S. economy continues to fend off recession,” Basu said in a statement. “Some economists have concluded that rather than a hard or soft landing, the U.S. economy is headed for ‘no landing,’ meaning that economic growth will continue despite rising interest rates.”

Contractors’ confidence may have been bolstered by a growing backlog or work. ABC’s Construction Backlog Indicator dipped slightly in January to nine months, but was still a full month higher compared to a year earlier.

Surveyed contractors’ backlog of infrastructure work saw the sharpest decline from December, dropping by 1.4 months to 8.6 months, the index shows. The backlog of commercial and institutional work dipped slightly from December but was still a full month higher than January of last year. 

Regionally, the contractors in the South had the greatest backlog at 10 months. The West saw the greatest growth in backlog, 1.4 months’ worth compared to a year earlier. 

Looking ahead, Basu says it appears more likely that the Federal Reserve will maintain higher borrowing costs after January’s strong jobs report. 

“Eventually, that could cause the economic expansion to unravel, perhaps later this year,” he said in a statement. “That could set the stage for diminished backlog and less confidence for contractors that specialize in privately financed projects as 2024 approaches.”