Area Economy

Nonresidential spending struggles to gain momentum

June 17, 2016
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Nonresidential construction spending fell 2.1 percent in April, according to analysis of U.S. Census Bureau data released this month. Nonresidential spending totaled $688.2 billion on a seasonally adjusted, annualized rate.

Much like last month, upward revisions to the previous two months of data mitigated the sting of a disappointing headline number. March’s estimate was revised from $695.7 billion to $702.6 billion, while February's estimate saw a 0.1 percent increase. March represents the first month spending exceeded $700 billion since March 2009.

Nonresidential construction spending growth continues to struggle to maintain momentum. Nonresidential construction has expanded by just 2.5 percent over the past year, with private spending up 3.4 percent and public spending up just 1.4 percent. While many will primarily attribute this to a sluggish U.S. economy — one that has expanded by less than 1.5 percent during each of the past two completed calendar quarters — there are other factors at work.

Lower materials prices reduce the value of completed work. Though commodity prices have been firming recently, they had been in decline for more than a year.

Moreover, in some communities, nonresidential construction is severely constrained by an insufficient number of qualified workers.

There also may be growing skittishness among private developers about possible overbuilding in commercial, office and lodging markets. Lodging and commercial construction spending dipped in April. This hesitancy is reflected in many ways, including in the architectural billings index, which has struggled to consistently rise much above its threshold value of 50.

Public spending also remains lackluster as many states deal with underfunded pensions and ballooning Medicaid costs.

Only five of 16 nonresidential construction sectors experienced monthly spending increases in April:

  • Religious: Up 9.6 percent monthly, up 7.3 percent yearly.
  • Public safety: Up 5.2 percent monthly, down 6.2 percent yearly.
  • Office: Up 1.6 percent monthly, up 20.3 percent yearly.
  • Amusement and recreation: Up 0.8 percent monthly, up 8.3 percent yearly.
  • Power: Up 0.3 percent monthly, up 0.6 percent yearly.

Spending in 11 nonresidential construction subsectors fell in April on a monthly basis:

  • Communications: Down 7.7 percent monthly, down 16.4 percent yearly.
  • Highway and streets: Down 6.5 percent monthly, up 4 percent yearly.
  • Commercial: Down 3.7 percent monthly, up 6.8 percent yearly.
  • Health care: Down 3 percent monthly, down 0.6 percent yearly.
  • Education: Down 2.4 percent monthly, up 5.4 percent yearly.
  • Lodging: Down 2 percent monthly, up 24.6 percent yearly.
  • Transportation: Down 1.7 percent monthly, down 1 percent yearly.
  • Sewage and waste disposal: Down 1.4 percent monthly, up 1 percent yearly.
  • Manufacturing: Down 1.4 percent monthly, down 9.8 percent yearly.
  • Conservation and development: Down 1.2 percent monthly, down 6.5 percent yearly.
  • Water supply: Down 0.5 percent monthly, down 6.5 percent yearly.

Anirban Basu is chief economist with Associated Builders and Contractors.

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