Manufacturing sector props up construction spending

Dive Brief:

  • National nonresidential construction spending increased 0.3% in January to a seasonally adjusted annualized basis of $968.7 billion, according to an Associated Builders and Contractors analysis.
  • The slight increase is attributable to manufacturing-related construction spending, which increased about 5.9% in January, according to ABC. Boosted by CHIPS Act funding, spending in the segment has jumped “an astonishing” 53.6% since January 2022, said Anirban Basu, ABC chief economist.
  • “Nonresidential construction spending inched higher to start the year and is just below the all-time high established in November,” said Basu. “With the CHIPS and Science Act directing $280 billion into semiconductor manufacturing and an ongoing desire to reshore manufacturing capacity, the segment should continue to thrive.”

Dive Insight:

Spending in the nonresidential sector continues to outpace inflation on a year-over-year basis, said Basu.

That’s because of massive spending in the manufacturing sector. Manufacturing construction spending jumped 5.9% in January, reaching $139.78 billion. Meanwhile, transportation spending increased 1.7% in January, totaling $61.45 billion, according to the report.

However, without manufacturing-related construction, nonresidential spending actually declined in January, Basu said.

In fact, seven of the 16 nonresidential subcategories posted declines in January, according to ABC. Water supply construction spending dipped 5.9% in January, followed by a 3.1% drop in commercial construction spending.

That’s due to a combination of headwinds, including severely elevated borrowing costs, ongoing labor shortages and enduring high input costs, added Basu.

Nevertheless, despite the gloomy economic outlook, a majority of contractors continue to expect their sales to increase over the next six months, according to ABC’s construction confidence index.

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