Nonresidential Construction Spending Falls 2% in June

Nonresidential construction spending fell 2% in June, to $697 billion on a seasonally adjusted basis according to US Census Bureau data released this week. This is the lowest level since January 2016, when spending was reported at $690 billion, and the first time since then that it has fallen below $700 billion.

According to Associated Builders and Contractors (ABC), "June’s weak construction spending report can be largely attributed to the public sector. Public nonresidential construction spending fell 5.4% for the month and 9.5% for the year, and all twelve public subsectors decreased for the month. Private nonresidential spending remained largely unchanged, increasing by 0.1% for the month and 1.1% for the year. April and May nonresidential spending figures were revised downward by 1.1% and 0.4%, respectively."

ABC Chief Economist Anirban Basu said "Coming into the year, there were high hopes for infrastructure spending in America. The notion was that after many years of a lack of attention to public works, newfound energy coming from Washington, D.C., would spur confidence in federal funding among state and local transportation directors as well among others who purchase construction services. Instead, public construction spending is on the decline in America. Categories including public safety and flood control have experienced dwindling support for investment, translating into a nine percent decline in public construction spending over the past twelve months."

“On the other hand, several private segments continue to manifest strength in terms of demand for construction services,” said Basu. “At the head of the class are office construction, driven by a combination of job growth among certain office-space-using categories as well as lofty valuations, and communications, which is being driven largely by enormous demand for data center capacity.

“While there are certainly some parts of the nation experiencing significant levels of public construction, those areas have increasingly become the exception as opposed to the rule,” said Basu. “The more general and pervasive strength is in private segments. Based on recent readings of the architecture billings index and other key leading indicators, commercial contractors are likely to remain busy for the foreseeable future. The outlook for construction firms engaged in public work remains unclear.”