Nonresidential construction outlays drop in March for fourth-straight month

Nonresidential construction spending fell to a two-year low in March as contractors struggled with slumping demand for most project types and growing shortages of materials, transport, and workers, according to an analysis of new federal construction spending data by the Associated General Contractors of America. Officials with the association said project cancellations and widespread supply chain problems are hindering the industry’s recovery.

“Every major category of private nonresidential projects has declined over the past year, while public construction spending is also deteriorating rapidly,” said Ken Simonson, the association’s chief economist. “Unfortunately, the widespread and growing backlogs for key materials and shortages of trucking and rail services to deliver goods mean that even projects that are underway are likely to take longer to complete.”

Construction spending in March totaled $1.51 trillion at a seasonally adjusted annual rate, an increase of 0.8% from the pace in February and 5.3% higher than in March 2020. However, the year-over-year gain was limited to residential construction, Simonson noted. That segment jumped 1.7% for the month and 23% year-over-year. Meanwhile, combined private and public nonresidential spending declined 1.1% from February—the fourth consecutive monthly decrease—and 7.4% over 12 months.

Private nonresidential construction spending fell 0.9% from February to March and 9.1% since March 2020, with year-over-year decreases in all 11 subsegments. The largest private nonresidential category, power construction, retreated 8.3% year-over-year and 0.4% from February to March. Among the other large private nonresidential project types, commercial construction—comprising retail, warehouse and farm structures—slumped 8.8% year-over-year and 0.5% for the month. Manufacturing construction tumbled 7.8% from a year earlier and 1.3% in March. Office construction decreased 4.2% year-over-year and 0.4% in March.

Public construction spending slumped 4.6% year-over-year and 1.5% for the month. Among the largest segments, highway and street construction declined 10.9% from a year earlier and 2.2% for the month, while educational construction decreased 4.0% year-over-year and 2.0% in March. Spending on transportation facilities declined 0.9% over 12 months but rose 1.8% in March.

Association officials urged Congress and the Biden administration to work together to increase investments in infrastructure. And they continued to call on the President to take steps to address rapidly rising materials prices, including by ending tariffs on key construction materials like steel and lumber. They cautioned that without the new investments and supply chain relief, the industry would have a hard time recovering.

“Federal officials are pushing for an economic recovery while at the same time hanging on to dated policies, like tariffs, that are holding growth back,” said Stephen E. Sandherr, the association’s chief executive officer. “Boosting infrastructure investments and tackling supply chain problems will go a long way in unleashing demand for new construction workers.”