Nonresidential construction declines again, public and private sector down in July

Nonresidential construction spending fell 1.7% in July, totaling $688.4 billion on a seasonally adjusted, annualized basis, according to an analysis by Associated Builders and Contractors (ABC) of data recently released by the U.S. Census Bureau. The absolute level of nonresidential construction spending was at its lowest point since December 2015.

Weakness in spending was widespread. 13 of the 16 nonresidential subsectors contracted for the month. Only the public safety and power categories experienced monthly increases, while the highway and street category remained unchanged for the month. However, May and June nonresidential spending was revised upward by a collective $11 billion.

“As a society, we collect and report data in order to clarify the nature of our circumstances and how they are changing,” said ABC Chief Economist Anirban Basu. “However, recently received data have muddied, not clarified, our collective understanding of how well the nation’s nonresidential construction sector is performing.

ABC Total Nonresidential Construction Spending chart Courtesy ABC.

“Earlier today, we received information indicating that hiring among nonresidential construction firms was brisk in August,” said Basu. “Job growth was significant among nonresidential construction specialty trade contractors and heavy and civil engineering firms, among others. Interpreted independently, this would suggest growing activity in private and public segments.

“But today’s construction spending report points in precisely the opposite direction. Based on that data, nonresidential construction activity has been trending lower since early 2017,” said Basu. “A number of private segments that had been generating significant growth in opportunities for contractors saw activity dwindle in July, including office (-1.3%), lodging (-2.7%), and amusement and recreation (-1.4%). For economists and other stakeholders, the question now is whether today’s jobs report tells the tale or today’s spending data are a better indicator.

“Based on consideration of other factors, including leading indicators, the narrative suggesting that construction activity continues to rise seems more reasonable,” said Basu. “Anecdotally and in survey data, many nonresidential construction firms continue to report healthy backlog and are looking forward to an active 2018. Moreover, recent events in Texas and Louisiana imply that negative trends in nonresidential construction spending will be reversed as rebuilding commences.”

ABC Nonresidential spending growth chart Courtesy ABC.

The Architectural Billings Index measures the general sentiment of U.S. architecture firms about the health of the construction market by measuring 1) design billings and 2) design contracts. Any score above 50 means that, among the architecture firms surveyed, more firms than not reported seeing increases in design work vs. the previous month.