The U.S. economy expanded at a 3.5% annualized rate during the third quarter of 2018, according to an Associated Builders and Contractors analysis of U.S. Bureau of Economic Analysis data released today. This represents the first time there have been two consecutive quarters of 3%-plus growth since the beginning of 2015.
Despite the broader economic growth, fixed investment inched 0.3% lower in the third quarter. Nonresidential fixed investment increased at just a 0.8% annualized rate, a stark reversal from the 11.5% and 8.7% growth observed in the first and second quarters, respectively. Investment in structures plummeted 7.9% after increasing by 13.9% and 14.5% in the previous two quarters.
“While the GDP increased, business investment, including investment in structures, was generally disappointing,” said ABC Chief Economist Anirban Basu. “Today’s GDP release is consistent with other data indicating a recent softening in capital expenditures, which caught many observers by surprise. Coming into the year, the expectation among many was that corporate tax cuts would translate into a lengthy period of rising business investment.
“As always, there are multiple explanations for the observed slowing in capital expenditures,” said Basu. “The first is simply that this represents an inevitable moderation in fixed business investment after the stunning growth in investment registered during the year’s initial two quarters. A second explanation, however, is not nearly as benign. This explanation focuses on both the growing constraints that businesses face due to a lack of trained workers available to work on new equipment, as well as the impact of rising input costs. Corporate earnings are no longer as consistently surprising to the upside, an indication of the impact of rising business costs. It may be that the dislocation created by ongoing trade skirmishes is also inducing certain firms to invest less in equipment and structures.
“If the first explanation is correct, one would expect a bounce back in capital expenditures,” said Basu. “The logic is that the U.S. business community has taken a bit of a breather to digest all of the capital investments undertaken during the first half of 2018. However, the second would indicate economic growth and the pace of hiring to soften in 2019. That obviously would not be a welcome dynamic for America’s construction sector.”
Related Stories
Market Data | Mar 22, 2017
Architecture Billings Index rebounds into positive territory
Business conditions projected to solidify moving into the spring and summer.
Market Data | Mar 15, 2017
ABC's Construction Backlog Indicator fell to end 2016
Contractors in each segment surveyed all saw lower backlog during the fourth quarter, with firms in the heavy industrial segment experiencing the largest drop.
Market Data | Feb 28, 2017
Leopardo’s 2017 Construction Economics Report shows year-over-year construction spending increase of 4.2%
The pace of growth was slower than in 2015, however.
Market Data | Feb 23, 2017
Entering 2017, architecture billings slip modestly
Despite minor slowdown in overall billings, commercial/ industrial and institutional sectors post strongest gains in over 12 months.
Market Data | Feb 16, 2017
How does your hospital stack up? Grumman/Butkus Associates 2016 Hospital Benchmarking Survey
Report examines electricity, fossil fuel, water/sewer, and carbon footprint.
Market Data | Feb 1, 2017
Nonresidential spending falters slightly to end 2016
Nonresidential spending decreased from $713.1 billion in November to $708.2 billion in December.
Market Data | Jan 31, 2017
AIA foresees nonres building spending increasing, but at a slower pace than in 2016
Expects another double-digit growth year for office construction, but a more modest uptick for health-related building.
High-rise Construction | Jan 23, 2017
Growth spurt: A record-breaking 128 buildings of 200 meters or taller were completed in 2016
This marks the third consecutive record-breaking year for building completions over 200 meters.
Market Data | Jan 18, 2017
Fraud and risk incidents on the rise for construction, engineering, and infrastructure businesses
Seven of the 10 executives in the sector surveyed in the report said their company fell victim to fraud in the past year.
Market Data | Jan 18, 2017
Architecture Billings Index ends year on positive note
Architecture firms close 2016 with the strongest performance of the year.