According to an Associated Builders and Contractors analysis of U.S. Census Bureau data published today, national nonresidential construction spending declined 0.3% in July totaling $776 billion on a seasonally adjusted annualized basis, and increased 0.1% compared to July 2018. The June 2019 estimates were revised upward from $773.8 billion to $778.5 billion.
In July, private nonresidential spending decreased 0.8% on a monthly basis and 2.7% on a yearly basis. Public nonresidential spending, however, increased 0.4% for the month and 4.3% for the year.
"While there is much discussion regarding the extent to which the U.S. economy has slowed and will slow going forward, these considerations have relatively little to do with today's nonresidential construction spending data," said ABC Chief Economist Anirban Basu. "Trends in nonresidential construction tend to lag the broader economy by a year to 18 months, which means that today's construction spending numbers reflect in large measure broader economic dynamics characterizing 2018. Last year was a good one for the economy, persuading many to move ahead with projects.
"Recent construction spending data, therefore, have been impacted by factors more closely related to the industry," said Basu. "For instance, the recent weakening in certain private construction segments, including office and lodging, are likely due to growing concerns regarding overbuilding and the somewhat higher cost of capital. Public spending growth, despite solid numbers in July, has been more erratic of late. This may have something to do with the looming insolvency of the Highway Trust Fund, which is expected in 2021 without congressional action. There is already evidence that some states have begun to postpone planning for new projects until there is more clarity regarding federal infrastructure spending, evident in the 2.7% spending decline observed in the highway and street category.
"Despite recent slow growth in construction spending, the U.S. construction industry has continued to expand employment levels during the past year," said Basu. "ABC’s Construction Backlog Indicator continues to show that the average contractor or subcontractor will remain busy over the near term. One of the reasons for relatively slow growth in nonresidential construction spending may simply be that the U.S. contracting community cannot deliver significantly more service in the context of worsening labor/skills shortages. In other words, nonresidential construction volume may already be near its peak potential supply. Given that, one wouldn't expect substantial growth in construction spending even in the context of significantly stronger economic growth."
Related Stories
Market Data | Feb 17, 2016
AIA reports slight contraction in Architecture Billings Index
Multifamily residential sector improving after sluggish 2015.
Market Data | Feb 11, 2016
AIA: Continued growth expected in nonresidential construction
The American Institute of Architects’ semi-annual Consensus Construction Forecast indicates a growth of 8% in construction spending in 2016, and 6.7% the following year.
Market Data | Feb 10, 2016
Nonresidential building starts and spending should see solid gains in 2016: Gilbane report
But finding skilled workers continues to be a problem and could inflate a project's costs.
Market Data | Feb 9, 2016
Cushman & Wakefield is bullish on U.S. economy and its property markets
Sees positive signs for construction and investment growth in warehouses, offices, and retail
Market Data | Feb 5, 2016
CMD/Oxford forecast: Nonresidential building growth will recover modestly in 2016
Increased government spending on infrastructure projects should help.
Market Data | Feb 4, 2016
Mortenson: Nonresidential construction costs expected to increase in six major metros
The Construction Cost Index, from Mortenson Construction, indicated rises between 3 and 4% on average.
Contractors | Feb 1, 2016
ABC: Tepid GDP growth a sign construction spending may sputter
Though the economy did not have a strong ending to 2015, the data does not suggest that nonresidential construction spending is set to decline.
Data Centers | Jan 28, 2016
Top 10 markets for data center construction
JLL’s latest outlook foresees a maturation in certain metros.
Market Data | Jan 20, 2016
Nonresidential building starts sag in 2015
CDM Research finds only a few positive signs among the leading sectors.
Market Data | Jan 20, 2016
Architecture Billings Index ends year on positive note
While volatility persists, architecture firms reported healthy performance for 2015.