Area Economy

Nonresidential construction spending slips once again

February 5, 2016
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Nonresidential construction spending dipped for a second consecutive month, falling 0.4 percent on a monthly basis in December, according to analysis of U.S. Census Bureau data.

Nonresidential construction spending totaled $681.2 billion on a seasonally adjusted, annualized basis. November's nonresidential construction spending estimate was revised lower by 0.6 percent to $683.7 billion.

For a second consecutive month, 12 of 16 nonresidential subsectors experienced spending decreases on a monthly basis. Private nonresidential spending dipped 2.1 percent for the month, while public sector spending expanded 2.2 percent.

December's estimate is a bit unnerving not only because it represents a second consecutive month of spending decline, but also because unusually warm temperatures should have helped to translate into better spending performance.

A number of leading indicators suggest that nonresidential construction spending performance will remain choppy moving forward, both for the broader economy and the nation's nonresidential construction segment, including the Baltic Dry Index, the Conference Board's Index of Leading Economic Indicators and the Architecture Billings Index.

This is not to suggest the nonresidential recovery will end in the near term. Most firms continue to report healthy backlogs and hiring remains aggressive, implying that many firms are staffing up in order to perform on forthcoming contractual opportunities.

However, private credit is beginning to tighten and becoming more expensive. Consumer delinquencies are edging higher and corporate bond defaults have been climbing. Accordingly, many contractors may experience a slowdown in backlog accumulation in 2016, with the 2017-2018 economic outlook remaining decidedly murky.

Only four of 16 nonresidential construction sectors experienced spending increases in December on a monthly basis:

  • Spending in the highway and street category expanded by 9.6 percent on a monthly basis and 11.7 percent on a yearly basis.
  • Communication-related spending increased 4 percent month over month and 37.2 percent year over year.
  • Sewage and waste disposal-related spending expanded 1.3 percent for the month, but fell 9.7 percent from the same time last year.
  • Spending in the amusement and recreation category climbed 0.5 percent on a monthly basis and 9.2 percent on a year-over-year basis.

Spending in 12 of the nonresidential construction subsectors fell in December on a monthly basis:

  • Spending in the power category fell 0.3 percent from November 2015, but is 7.6 percent higher than in December 2014.
  • Commercial-related construction spending fell 0.6 percent for the month and 3.2 percent for the year.
  • Educational-related construction spending fell 0.8 percent on a monthly basis, but expanded 10 percent on a yearly basis.
  • Transportation-related spending fell 0.8 percent month over month, but expanded 2.3 percent year over year.
  • Lodging-related spending was down 1.3 percent for the month, but is up 29.1 percent on a year-ago basis.
  • Spending in the office category fell 1.8 percent from November 2015, but is up 16.6 percent from December 2014.
  • Water supply-related spending fell 2.9 percent on a monthly basis and 6.6 percent on a yearly basis.
  • Health care-related spending fell 3.2 percent month over month, but is up 0.4 percent year over year.
  • Spending in the religious category fell 4.1 percent for the month and 1.7 percent for the year. 
  • Public safety-related spending declined 4.6 percent for the month and 7.4 percent for the year. 
  • Manufacturing-related spending fell 7.2 percent from November 2015, but is 19.6 percent higher than in December 2014.
  • Conservation- and development-related spending declined 9.9 percent on a monthly basis and is 8 percent lower on a yearly basis.

Anirban Basu is chief economist for Associated Builders and Contractors.

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