Construction backlog fell to its lowest level in four years in January, signaling softer demand to start 2026 even as contractors express confidence in their own business prospects.
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According to a survey conducted by the Associated Builders and Contractors from Jan. 20 to Feb. 3, industry backlog declined to eight months in January — down 0.2 months from December. Year over year, total backlog slipped 0.4 months.
The drop reflects uneven conditions across the industry. Larger contractors generating more than $50 million in annual revenue reported year-over-year backlog gains, while firms below that threshold experienced fewer pending projects compared to January 2025.
Infrastructure was one of the few bright spots. Backlog in that category rose to 10 months in January, nearly a full month increase from December. Meanwhile, commercial and institutional segments posted declines, contributing to the overall downturn.
The disparity between large and small contractors underscores a widening divide in the industry. Bigger firms, often better positioned to secure public infrastructure work or large-scale private projects, appear to be weathering economic headwinds more effectively.
Smaller contractors, however, may be feeling the impact of tighter financing conditions, project delays and cautious private-sector spending. With borrowing costs still elevated, some developers are postponing projects, particularly in commercial real estate segments that remain sensitive to interest rates.
Despite the softer numbers, contractor sentiment about their own businesses remains surprisingly upbeat.
“The unfavorable backlog report to start the year stood in stark contrast to contractors’ sentiments for their own businesses,” noted Anirban Basu, chief economist for ABC.
“Backlog fell to a four-year low in January, yet contractors remain shockingly sanguine about the near-term outlook,” said Basu. “Just 13% of contractors expect their sales to decrease over the next six months, the smallest share since February 2022.”
ABC’s Construction Confidence Index — which measures expectations for sales, profit margins and staffing — rose across all three categories at the start of 2026. Sales expectations, in particular, posted stronger readings than a year ago. While profit margin and staffing outlooks also indicate expected growth over the next six months, those measures are slightly weaker compared to early 2025 levels.
However, optimism appears to be largely personal.
Approximately 46% of contractors surveyed believe their competitors will see sales decline over the next two quarters, highlighting a disconnect between individual business confidence and broader industry expectations.
“Whether or not this personal optimism is justified will likely depend on the extent to which borrowing costs can decline in 2026,” said Basu.
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The trajectory of interest rates may play a decisive role in determining whether contractor optimism translates into sustained growth. If financing costs ease in 2026, stalled private projects could move forward, improving backlog levels.
Meanwhile, infrastructure investment continues to provide a stabilizing force for the sector. The uptick in infrastructure backlog suggests that publicly funded projects — including transportation, utilities and energy systems — remain active, even as certain commercial segments slow.
Industry observers say the coming quarters will test whether contractors’ confidence is rooted in strong pipelines of upcoming work or simply reflects hope for improving macroeconomic conditions.
For now, the January report presents a mixed picture: backlog levels at a four-year low, but sentiment among builders that the worst may not be ahead.
Originally reported by Sebastian Obando, Reporter in Construction Dive.
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