ABC Reports: Nonresidential Construction Spending Down Again in June, First Annual Decline Since 2013

Nonresidential construction spending dipped 1 percent in June and has now contracted for three consecutive months according to analysis of U.S. Census Bureau data released today by Associated Builders and Contractors (ABC). Nonresidential spending, which totaled $682 billion on a seasonally adjusted, annualized rate, has fallen 1.1 percent on a year-over-year basis, marking the first time nonresidential spending has declined on an annual basis since July 2013.

“On a monthly basis, the numbers are not as bad as they seem, as May’s nonresidential construction spending estimate was revised higher. However, this fails to explain the first year-over-year decline in nearly three years,” said ABC Chief Economist Anirban Basu. “There are many forces at work, most of them negative, with the noteworthy exception of construction materials prices, which are down on a year-over-year basis. To the extent that savings are being passed along to purchasers of construction services, spending would appear lower in dollar terms than when measured in physical terms such as square footage.

“Thanks in part to the investment of foreign capital in America, spending related to office space and lodging are up by more than 16 percent year-over-year,” said Basu. The global economy is weak, and international investors are searching for yield and stability. U.S. commercial real estate has become a popular destination for foreign capital. However, the weakness of the global economy may also help explain the decline in manufacturing-related construction spending of nearly 5 percent for the month and more than 10 percent year-over-year.

“Though many contractors continue to report extensive backlog, the data suggest that average firm backlog may begin to retrench,” warned Basu. “The only significant driver of economic growth in America presently is consumer spending. Corporate profits remain stagnant and business investment remains underwhelming. Public sector spending does not appear positioned to accelerate anytime soon despite the passage of a federal highway bill last year.”

Precisely half of the 16 nonresidential subsectors expanded in June. Two of the largest subsectors—manufacturing and commercial—experienced significant contractions in June, however, and were responsible for a majority of the dip in spending.

Tepid spending by public agencies also continues to shape the data. Despite a monthly pick-up in spending, water-supply construction spending is down 14 percent on a year-over-year basis. Public safety construction spending is down 8.4 percent from a year ago, sewage and waste disposal by nearly 15 percent, highway and street by about 6 percent, education by 4 percent and transportation by more than 3 percent.

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