Construction spending dips, but contractors remain optimistic

Dive Brief:

  • Nonresidential construction spending decreased 0.4% in August due to rising costs of both financing and delivering construction services, reflecting a persistent disparity between high contractor confidence and gloomy macroeconomic trends.
  • Spending shrunk on a monthly basis in 10 0f 16 nonresidential subcategories in August, according to an Associated Builders and Contractors analysis of data published Monday by the U.S. Census Bureau. 
  • Highway and water supply spending both fell 1.2% on a monthly basis, while public safety spending dropped 1.3%. Lodging and sewage were the biggest gainers, growing 1.6% and 1.4%, respectively.

Dive Insight:

Nonresidential spending totaled $859.3 billion in August on a seasonally adjusted annualized basis, as private nonresidential spending ticked down 0.1%, while public nonresidential construction spending decreased 0.8%. 

Residential spending fell 1% over the last month, while total construction spending dipped 0.7% in August, the biggest decrease since February 2021, according to the data. 

But compared with a year ago, spending on water projects was up 23.3%, the biggest 12-month gain of any sector. Spending on commercial construction jumped 19.1% from a year ago, while spending on manufacturing increased 21.5% from a year earlier.

ABC Chief Economist Anirban Basu said many contractors still remain in expansion mode and expect to experience rising sales, profit margins and employment levels in the next six months.

“The disparity between high contractor confidence and worrisome macroeconomic outcomes persists,” Basu said in a statement.

The sector gains and slumps, like the impact of the pandemic itself, were uneven.

“While some segments… continue to struggle in the context of behavioral shifts wrought by the pandemic, other segments are showing significant momentum,” said Basu. “This is especially apparent in certain public construction segments like water and sewer, highway and street, and flood control.”

Spending on sewage and waste disposal projects ticked up 1.4% in August, posting an increase of 11.9% over the last year. On the other hand, spending on office projects fell 0.5% in August, and dropped 0.9% from a year ago.

But total nonresidential construction indicates that consistent spending growth remains elusive. For example, the slump in August came after nonresidential construction spending ticked up by 0.8% in July.

“Given the rising costs of project financing and delivering construction services, [the spending growth decrease] is not surprising,” said Basu. “Arguably, it is the contractor confidence that is counterintuitive.”

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