Construction spending inches higher

• National nonresidential construction spending ticked up 0.1% in October to a seasonally adjusted annualized basis of $1.1 trillion, according to a new Associated Builders and Contractors analysis.
• The marginal gain marks the 17th consecutive month of growth, primarily due to activity in both the manufacturing sector and infrastructure-related projects, said Anirban Basu, ABC chief economist. But spending in the commercial segment, which includes distribution centers and warehouses, fell sharply, he said. The sector fell 1.5%, the largest decline of any category.
• “Nonresidential construction spending increased for the 17th consecutive month in October and is now up an even 20% over the past year,” said Basu. “Despite weakness in the commercial category and other headwinds like high interest rates and labor shortages, contractors remain optimistic about their sales over the next six months.”

Dive Insight:

Mixed activity levels within categories suggest the construction market is shifting, but still remains strong overall, according to a separate analysis of spending trends from the Associated General Contractors of America.

Spending on manufacturing plants, the largest nonresidential segment, jumped 0.9% in October, according to AGC. Meanwhile, highway and street spending, the second largest nonresidential segment, ticked down 0.4% in October, according to the report.

AGC officials said the decline in highway and street construction stems partly from the Biden administration’s recently enacted reforms to the federal permitting process. They say many state and local officials are struggling to follow the administration’s Build America, Buy America rules, for example.

“It is apparent that the construction market overall remains healthy,” said Ken Simonson, AGC chief economist. “But a rotation is occurring among nonresidential segments as manufacturing construction expands while commercial construction slumps and highway and street spending stagnate.”

Commercial construction, which includes warehouse and retail projects, fell 1.5% in October compared to a month ago, noted the AGC report. That’s likely due to a severe slowdown in the freight industry and slowing warehouse-related construction rather than a sudden decline in retail-related construction, said Basu.

But while the commercial and highway and streets sectors were down for the month, they still racked up 5.3% and 12.7% gains, respectively, over the last 12 months.

That explains why this slowdown in commercial projects has yet to affect the construction industry’s overall optimism. Even with high materials costs and lingering labor shortages, the majority of contractors still expect profit margins to jump over the next six months, said Basu.

Spending increased on a monthly basis in 8 of the 16 nonresidential subcategories, such as manufacturing, power and educational projects, according to ABC. Private nonresidential spending inched 0.1% higher in October, while public nonresidential construction spending ticked up 0.2%.