The construction industry’s backlog rose in July, fueled by robust public works projects and a surge in data center development, even as contractors grew more cautious about future sales and profitability, according to new data from Associated Builders and Contractors (ABC).

ABC’s latest Construction Backlog Indicator, based on a survey conducted from July 24 to Aug. 4, found that average backlog climbed to 8.8 months — up 0.4 months compared to the same period last year. Every U.S. region reported a year-over-year increase in backlog except the South, which still maintains the longest project pipeline in the country.

While the increased workload signals strong demand, contractors’ confidence around profit margins and sales dipped. “While backlog rose, contractor confidence slipped in July, especially with regards to profit margins,” said Anirban Basu, ABC chief economist. “Fewer than 2% of ABC members expect their profit margins to increase significantly over the next six months, the fewest since October 2024.”

Rising material prices are a key factor in the more cautious outlook. More than 80% of ABC members said they had received supplier notices of higher costs, a trend Basu linked to recent trade policies and tariff-related pressures. These cost escalations are weighing on overall construction spending, which fell in June for the sixth time in the past seven months.

Despite the challenges, certain sectors continue to provide a boost. Public construction activity, especially in infrastructure, has outpaced the private sector in recent months, and the data center boom remains a major driver of work volume. “Some of that strength can be attributed to the fact that one in every eight ABC members is currently under contract to perform work on a data center project,” Basu noted. “Backlog in the infrastructure category has also increased considerably over the past year, and public construction activity has outperformed the private sector over the past several months.”

The report also highlighted a bright spot in employment expectations: contractor staffing forecasts reached their highest point since April, suggesting firms are still planning to hire despite margin pressures.

Industry analysts say the mix of strong public sector demand and specialized private sector growth, like hyperscale data centers, is helping cushion the blow from rising input costs. However, if material price increases persist and tariffs remain in place, private investment could slow further. The South’s backlog decline, despite still leading the nation in length, may hint at a cooling in certain high-growth metros that previously drove nationwide numbers upward.

Originally reported by Sebastian Obando in Construction Dive.