Area Economy

Nonresidential spending regains momentum to start year

March 4, 2016
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Nonresidential construction spending crested the $700 billion mark on a seasonally adjusted annualized basis in January for the first time since March 2009, according to an analysis of U.S. Census Bureau data.

Nonresidential construction spending expanded 2.5 percent on a monthly basis and 12.3 percent on a yearly basis, totaling $701.9 billion. The Census Bureau upwardly revised December's estimate from $681.2 billion to $684.5 billion, though it downgraded November's figure from $683.7 billion to $680.5 billion.

Private nonresidential construction spending increased by 1 percent for the month, while its public counterpart expanded by 4.6 percent.

After several months of relatively weak nonresidential construction spending data, the data release was most welcome. While January is a difficult month to interpret and one that should not be overly emphasized, the fact of the matter is that the year-over-year performance in spending is consistent with a host of industry indicators.

For many months, the average contractor has been reporting a decent backlog. Measures of industry confidence have remained stable even in the face of adverse news coming from various parts of the world.

While the nonresidential construction spending recovery appears to remain in place, the industry's overall outlook remains murky. The global economy remains weak, and domestic corporate profitability has been slipping.

The U.S. economic recovery continues to be under-diversified, with consumers continuing to lead the way. If corporate profitability continues to struggle, given falling exports and a general lack of confidence among CEOs, the pace of employment growth will slow over the course of 2016. That will presumably affect consumer spending, which is already being hampered by rising health care costs.

That, in turn, could jeopardize the ongoing economic recovery, now on its way to completing its seventh year.

Spending increased in January on a monthly basis in 10 of 16 nonresidential construction sectors:

  • Spending in the highway and street category expanded 14.6 percent from December 2015 and is 33.9 higher than in January 2015.
  • Sewage and waste disposal-related spending expanded 4 percent for the month and 1.4 percent from the same time last year.
  • Spending in the amusement and recreation category climbed 0.7 percent on a monthly basis and 16.9 percent on a year-over-year basis.
  • Conservation and development-related spending is 10 percent higher on a monthly basis and 1.6 percent higher on a yearly basis.
  • Lodging-related spending is up 6.3 percent for the month and is up 34.8 percent on a year-ago basis.
  • Spending in the religious category grew 4.2 percent for the month and 0.2 percent from January 2015.
  • Manufacturing-related spending expanded 4.2 percent on a monthly basis and is up 11.3 percent on a yearly basis.
  • Spending in the power category expanded 2.9 percent from December 2015 and is 8.1 percent higher than in January 2015.
  • Water supply-related spending expanded 2 percent on a monthly basis but fell 7.9 percent on a yearly basis.
  • Spending in the office category grew 0.2 percent from December 2015 and is up 19.6 percent from January 2015.

Spending in six of the nonresidential construction subsectors fell in January on a monthly basis:

  • Commercial-related construction spending fell 4.3 percent for the month but grew 0.8 percent on a year-over-year basis.
  • Education-related construction spending fell 1.1 percent on a monthly basis, but expanded 12.1 percent on a yearly basis.
  • Transportation-related spending fell 2.5 percent month-over-month, but expanded 0.6 percent year-over-year.
  • Health care-related spending fell 0.1 percent month-over-month but is up 1.8 percent year-over-year.
  • Public safety-related spending is down 1.5 percent for the month and 3.2 percent from the same time one year ago.
  • Communication-related spending fell by 4.2 percent month-over-month but expanded 27.2 percent year-over-year.

Anirban Basu is chief economist of Associated Builders and Contractors.

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