Construction spending growth looks ‘solid going forward’

Dive Brief:

• National nonresidential construction spending inched up 0.1% in July to a seasonally adjusted annualized basis of $1.08 trillion, according to new Associated Builders and Contractors analysis.
• The marginal gain follows a slight drop in the previous spending report, where construction spending finally reversed an 11-month streak of nonresidential spending increases.
• “Since nonresidential construction hiring was strong last month, the expectation is that July’s construction spending number will prove to be an aberration,” said Anirban Basu, ABC chief economist. “Spending growth should be solid going forward, driven in large measure by several massive construction projects in development or early construction stages.”

Dive Insight:

Construction spending levels in July suggest “no letup in demand for construction workers or private-sector projects,” said Associated General Contractors of America Chief Economist Ken Simonson in the group’s own spending report.

Still, Simonson continues to caution that progress on many public infrastructure projects are likely being undermined due to a flurry of regulatory measures from the Biden administration. “Contractors are frustrated by the slow pace of new public project awards,” he said.  

Public construction spending ticked down 0.4% in July due to slowdowns in the largest infrastructure categories. For example, highway and street spending fell off 0.6% in July, along with 0.9% and 1.2% drops in transportation and waste disposal construction, according to the AGC report.

Total construction spending, which includes housing, increased 0.7% in July, according to the AGC report. Nevertheless, once adjusted for inflation, spending declined in real terms, said Basu.

Despite solid expectations for construction spending growth, drops in public construction spending categories jolted expectations, said Basu. He also added segments that depend most on bank financing “are poised to weaken going forward.”

“Perhaps the bigger surprise is that construction spending weakness was not concentrated in the private developer-driven segments that have struggled to establish consistent momentum, but in a number of public construction segments,” said Basu. “However, each of these categories has experienced year-over-year spending growth.”

Spending increased on a monthly basis in 8 of the 16 nonresidential subcategories, led by a 1.1% growth in manufacturing projects, according to ABC. Private nonresidential spending ticked up 0.5%, while public nonresidential construction spending slipped 0.4% in July.