Area Economy

Nonresidential construction spending reaches eight-year peak

January 6, 2017
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Nonresidential construction surged in November, according to analysis of U.S. Census Bureau data released by Associated Builders and Contractors. Nonresidential spending expanded to $712.4 billion on a seasonally adjusted, annualized rate in November, representing the highest level of spending in eight years.

October’s figure was upwardly revised by 1 percent (from $699.7 billion to $706.5 billion), while September’s figure was upwardly revised by 0.8 percent (from $701.7 billion to $707.2 billion). A bit more than half of the 16 subsectors experienced spending increases in November.

The strong spending report contributed to a bright short-term outlook for the commercial and industrial construction sectors. Nonresidential construction spending is up approximately 5 percent on a year-over-year basis, and momentum should build further.

With a new presidential administration coming to Washington, there is a presumption the economic dynamics of the near-term future will be markedly different than they have been. If the last few weeks are any indication, the 2017 economy will be associated with tax cuts, more government spending, less financial regulation, faster economic growth, a stronger U.S. dollar, robust stock market performance and greater overall CEO confidence.

That should translate into improved construction spending moving forward.

It should be noted data for November largely reflect the economic dynamics of the past. Many construction firms have reported they remain busy but have become concerned work could dry up in certain markets in 2017 or ’18. This has been due to a combination of factors, including evidence of overbuilding in segments such as lodging and office buildings, even in Tier 1 markets like New York and Miami.

Some are, of course, unnerved by prospects for shrinking exports given a stronger U.S. dollar, larger budget deficits and rising interest rates.

These are legitimate concerns and may ultimately serve to suppress U.S. economic dynamism. However, for now, the nonresidential construction outlook remains promising.

The major source of uncertainty regarding the near-term outlook stems from whether the incoming administration successfully will pass an infrastructure package and how quickly such legislation would translate into stepped-up public construction spending.

Anirban Basu is chief economist with Associated Builders and Contractors.

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