Key Takeaways
- Nonresidential construction spending expanded 0.8 percent in December, totaling $720.4 billion on a seasonally adjusted basis, the 5th consecutive month during which the pace of nonresidential spending has increased. Year-over-year, nonresidential spending expanded 0.1 percent.
- Spending in the power and manufacturing categories, which are two of the largest nonresidential subsectors, contracted by a combined 10.3 percent, or $18.2 billion, since December 2016.
- “The tax cut will further bolster liquidity and confidence, which will ultimately translate into more construction starts and spending."
- Talent and labor are still major issues for the industry.
- In contrast to the increase between November and December, public construction spending for the full year shrank 2.5 percent from the 2016 total, as lower totals for infrastructure segments offset a 2.5 percent increase in public educational spending. The largest public category, highway and street construction, declined 3.7 percent for the year.
Press Release from Associated Builders and Contractors, Inc.
WASHINGTON, Feb. 1—Nonresidential construction spending expanded 0.8 percent in December, totaling $720.4 billion on a seasonally adjusted basis, according to Associated Builders and Contractors’ (ABC) analysis of data released today by the U.S. Census Bureau. This represents the fifth consecutive month during which the pace of nonresidential spending has increased.
Nonresidential spending expanded 0.1 percent on a year-over-year basis and sits at its highest level since March. Private nonresidential construction spending increased 1.1 percent for the month, but is down 2.5 percent year over year, while public nonresidential spending increased 0.4 percent for the month and 4.4 percent for the year. Spending in the power and manufacturing categories, which are two of the largest nonresidential subsectors, contracted by a combined 10.3 percent, or $18.2 billion, since December 2016.
“While data releases are important for many reasons, including helping us to understand what happened in the past, their principal value lies in clarifying our shared understanding of the probable future,” said ABC Chief Economist Anirban Basu. “Today’s data release, which essentially confirms the existence of the ongoing construction expansion cycle, is less useful than usual.The obvious reason is that the December data reflect a pre-existing pattern of construction spending. The future is likely to represent a departure from prior trends, in large measure because of the recently passed tax reform bill.
“Even before the United States enacted tax reform, global and domestic financial systems were flush with liquidity and capital,” said Basu. “The tax cut will further bolster liquidity and confidence, which will ultimately translate into more construction starts and spending. If long-awaited progress is made on infrastructure spending, the construction recovery will likely transition from solid to spectacular. Note that the transportation category has already expanded 12.9 percent on a year-over-year basis. During much of the past three years, spending growth generally has been concentrated in a number of key private construction segments, while public construction has tended to lag.
“Of course, industry insiders are scratching their collective heads regarding how to amass enough human capital to actually deliver construction services on time and on budget,” said Basu. “Frankly, that’s a mystery. The implication is that any infrastructure package must be accompanied by action that helps expand apprenticeship programs, steps up investment in two-year colleges, encourages high schools to offer career and technical education, and encourages more people to leap into the U.S. labor force.”
Press Release from Associated General Contractors of America
February 1, 2018
Association Officials Urge Policy Makers to Boost Funding and Streamline Reviews for Highways and Other Transportation Modes, Drinking Water and Wastewater Systems to Sustain the Economy, Safety and Health
Construction spending increased for a fifth consecutive month in December as private residential and nonresidential investment for the year topped 2016 totals, while declining infrastructure spending dragged down public-sector outlays, according to an analysis of new government data by the Associated General Contractors of America. Association officials said federal, state and local officials should address the growing shortfall in transportation, water and wastewater infrastructure in order to sustain economic growth and improve public health and safety.
“Construction spending ended the year on a high note, with gains over November levels for all major categories, but the annual totals for 2017 were much more mixed,” said Ken Simonson, the association's chief economist. “For now, it appears residential construction will grow strongly again in 2018, while private nonresidential categories will be uneven, and public spending is at risk of recording a third consecutive decline.”
Construction spending in December totaled a record $1.253 trillion at a seasonally adjusted annual rate, an increase of 0.7 percent from the November total. For the month, private nonresidential construction spending rose 1.1 percent, private residential spending gained 0.5 percent, and public construction spending added 0.3 percent.
Residential construction spending rose 10.6 percent from 2016 to 2017 as a whole. There were increases in all three segments: new single-family housing (up 9.1 percent from 2016), new multifamily (up 3.7 percent) and improvements to existing single- and multifamily (up 15.3 percent).
Private nonresidential spending edged up 0.6 percent, as declines in two large segments—power and energy (down 4.2 percent for the year) and manufacturing (down 12.7 percent)—partially offset increases in retail, warehouse and farm construction (up 14.0 percent) and office construction (up 1.5 percent).
In contrast to the increase between November and December, public construction spending for the full year shrank 2.5 percent from the 2016 total, as lower totals for infrastructure segments offset a 2.5 percent increase in public educational spending. The largest public category, highway and street construction, declined 3.7 percent for the year. Public transportation construction edged down 0.9 percent. Sewage and waste disposal construction fell 13.0 percent, water supply dropped 10.3 percent, and conservation and development notched a 5.8 percent decline.
Association officials called on federal, state and local officials to boost funding and shorten the review process for approving infrastructure projects. The officials said that new infrastructure funding is vital for supporting economic growth, as well as public health and safety.
“It is essential to increase the nation’s investment in roads and other transportation facilities to keep the economy growing,” said Stephen E. Sandherr, the association’s chief executive officer. “And investment in safer highways, drinking water and wastewater systems are important for public safety and health.”
Reporting from Bloomberg:
U.S. Construction Spending Rose in 2017 by Least in Six Years
Even with solid U.S. economic growth, construction spending rose in 2017 by the least in six years, as nonresidential building slowed and outlays by governments declined.
The value of construction put in place increased 3.8 percent to $1.23 trillion last year, according to Commerce Department figures released Thursday in Washington. That’s the smallest gain since a 2.6 percent drop in 2011. Spending for December was up 0.7 percent from the previous month, exceeding the median estimate of economists for a 0.4 percent increase.
Private nonresidential construction rose just 0.6 percent last year, compared with a 10.6 percent increase in residential building. The slow gain in the former category was driven by declines in construction related to power and manufacturing.
Public construction spending fell 2.5 percent last year to $279.8 billion, as state and local governments trimmed outlays. Declines were most pronounced in the categories of highways and streets; power; sewage and waste disposal; and water supply, the report showed.
Public spending on highways and streets fell 3.7 percent to $87.7 billion in 2017, according to the data.
Reporting from MarketWatch:
Construction spending climbs for fifth month to record
The numbers: The Commerce Department reported a 0.7% gain in construction spending in December, and a 2.6% advance over the past 12 months. That’s the fifth monthly gain in a row and a record high annual rate of $1.25 trillion.
November’s previously reported 0.8% gain was revised lower to show a 0.6% increase.
What happened: For all of 2017, construction spending grew 3.8% to $1.23 trillion. Residential spending jumped by 10.4%, but there were declines in spending for power, highway and street, sewage and waste disposal, water supply, conservation and development and manufacturing.
The big picture: On top of a strong jobs market and still fairly low interest rates, construction has also got a bump from the need to fix hurricane-related damage.
