Despite Lofty Backlog, Nonresidential Construction Spending Remains Stagnant in May
Nonresidential construction spending expanded by 0.3
percent on both a monthly and yearly basis in May and stands at
$714.3 billion on a seasonally adjusted annualized basis, according
to analysis of a report from the U.S. Census Bureau released today
by Associated Builders
and Contractors (ABC).
Private nonresidential construction spending fell to $433.6
billion in May, a decline of 0.7 percent. Private nonresidential
construction is now at its 2017 nadir, though it is 0.8 percent
higher than one year ago. Contrary to the prevailing trend, public
nonresidential construction spending rose 1.9 percent in May on a
monthly basis but remains 0.5 percent lower than in May 2016.
"Interpreting nonresidential construction spending data has
become more challenging in recent months," said ABC Chief Economist
Anirban Basu. "Among the sources of perplexity is the fact that the
nonresidential construction spending data do not align neatly with
trends in other key data.
"For instance, backlog remains strong and has been rising,
according to ABC's Construction Backlog Indicator and other recent
industry surveys," said Basu. "Construction employment has also
continued to expand, consistent with the notion that the average
contractor has been getting busier. Industry stakeholder
confidence remains reasonably high, though many industry
participants continue to express alarm regarding growing
construction skills shortages. But this sense of industry recovery
is barely apparent in the nonresidential construction spending
data, which indicate that spending has hardly expanded in nominal
terms over the past year and is actually down in real terms.
"The other apparent inconsistency comes from the shift in
construction spending growth from the private sector to the public
sector," said Basu. "In prior quarters, it was private
segments that drove industry-wide growth, particularly office,
communications, lodging, amusement/recreation and commercial
segments. However, there has been some weakening in a handful
of private segments recently, despite anecdotal information and
survey data indicating elevated real estate developer confidence,
low interest rates and busier architects.
"In May, it was public spending that led the way, including in
the highway and street category, which has generally been a source
of enormous disappointment since the Fixing America's Surface
Transportation Act became law in late 2015. Whether the
recent uptick in public construction spending is part of an
emerging sustained trend or simply statistical anomaly is not
clear. What is clear is that overall nonresidential
construction spending growth appears to be stalling, with many
prospective purchasers of construction services having apparently
adopted a wait-and-see attitude."