Contractors’ optimism causes them to abandon projects

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Tension in the construction market has increased despite a sharp decline in the number of project cancellations, according to a recent report from Cincinnati-based ConstructConnect.

According to the data, the number of abandonments dropped by 49.8% in September. ConstructConnect design stress indexa measure of construction projects that have been put on hold, abandoned, or have a delayed bid deadline.

However, despite the good news of fewer abandonments, work holdouts increased by 9.8% last month. The report found that this resulted in an overall increase in the project stress rate of 16.7% over the last 30 days.

“While (September’s PSI increase) represents a significant month-over-month increase, the August reading was revised downward, representing a three-year low,” said Michael Guckes, chief economist at ConstructConnect. “We must also remember that the indicator has been on a downward trend for most months of 2024. Only when compared to the record low reading does the September reading seem unusually elevated.”

While September’s reading was significantly higher than previous months, the latest results are within historical norms, Guckes said.

Growing optimism about lower interest rates may have kept some developers from holding off or abandoning projects in recent months, he said. On September 18, the Federal Reserve lowered interest rates by 0.5 percentage points.

According to ConstructConnect, the private sector has seen significant improvement, with the number of project abandonments down 9.4% compared to the same period in 2023. Meanwhile, the number of project suspensions decreased by 6.8% year-on-year, reflecting growing confidence in stabilizing market conditions, Guckes stated.

The report shows that the number of delayed offers remained almost unchanged and decreased by 0.1%.

Nevertheless, during optimism about lower interest rates begins to ease tensions in the construction market, the impact of high external financing costs continues. For example, weak demand in some sectors and financing conditions continue to have an impact overall private construction spending activity.

According to ConstructConnect, stress levels have also dropped on public projects, with project holdouts and abandonments down 17.6% and 5.5% respectively compared to the same period last year.

“Both sectors appear to be benefiting from falling interest rates and an overall positive outlook for the economy, and many people believe a soft landing is within the Fed’s reach,” Guckes said. “The Project Stress Index scores over recent months appear to be changing in line with broader sentiment. This broad optimism appears to be driving down stress readings in both the private and public sectors.”