Nonresidential Construction Spending Rebounds

TUESDAY, MAY 7, 2024


According to an analysis of data published by the U.S. Census Bureau, national nonresidential construction spending increased 0.2% in March, totaling $1.19 trillion on a seasonally adjusted annualized basis.

Spending was reportedly up on a monthly basis in 10 of the 16 nonresidential subcategories, the Associated Builders and Contractors report. Private nonresidential spending decreased 0.2%, while public nonresidential construction spending was up 0.8% in March.

“Nonresidential construction spending rebounded in March, ending a streak of two straight monthly declines,” said ABC Chief Economist Anirban Basu. “The increase was entirely due to increased public construction spending; private sector nonresidential spending dipped slightly lower in March.

“Despite wavering over the first three months of 2024, nonresidential spending is now up approximately 35% from the start of the pandemic and has outpaced economywide inflation (+20%) over that span. Ongoing spending strength, driven by both the public sector and the ascendant manufacturing category, continues to support healthy backlog for contractors, according to ABC’s Construction Backlog Indicator.”

The increase marks the end of a two-month straight decline starting in January, which brought an end to a 19-month streak of increases. Last month, the ABC reported that spending was down in 15 of the 16 subcategories for February.

Basu, at the time, said that an optimist would “shrug off” the decreases as reflecting winter weather, while the pessimist would proclaim this a “wake-up call to contractors” as higher interest rates made their mark.

Meanwhile, the Associated General Contractors’ analysis found declines in private nonresidential and residential projects that offset a rebound in public construction. However, contractors continued to report robust backlogs and few cancellations, suggesting that the slowdown in spending may be due to a lack of workers, not slumping demand.

“Private nonresidential categories showed varied patterns, while multifamily construction continued to slip from record levels in 2023,” said Ken Simonson, the association’s chief economist. “Meanwhile, public construction posted healthy gains for the month and year-over-year. These diverse trends suggest there is still strong demand for projects, but a dearth of workers may be forcing a slowdown in spending.”

Spending on private nonresidential and residential projects reportedly both declined in March but rose year-over-year.

Association officials said the strong gains in public construction were good for the industry and the economy, but they also noted that worker shortages are likely making for longer project completion times and holding down monthly spending on private projects. They also urged federal, state and local officials to increase funding for construction education and training programs.

“Continuing economic growth requires investments in infrastructure, manufacturing, and energy projects,” said Jeffrey D. Shoaf, the association’s chief executive officer. “Investing in new construction education and training programs and enacting some common-sense immigration reforms is essential for ensuring the nation has enough workers with the skills to build these and other vitally needed projects.”

Backlog, Contractor Confidence

The latest Construction Backlog Indicator from the ABC has found that, despite high costs, supply chain issues and labor shortages, optimism among contractors and their backlogs is remaining high.

The CBI slightly increased to 8.2 months in March from 8.1 months; however, the reading is down 0.5 months from March last year. The findings are based on an ABC member survey conducted March 20 to April 3.

The backlog is reportedly down over the past year for every region except for the Middle States, which now has the second largest backlog of any region. The South also continues to have the largest backlog, despite a large decline over the past year.

The backlog revealed an increase in only a couple of sectors, including:

  • the Middle States region, from 7.3 to 8.0; and
  • the less than $30 million company size, from 7.5 to 7.7.

The backlog fell in most sectors, including:

  • the Commercial and Institutional industry, from 8.1 to 8.5;
  • the Heavy Industrial industry, from 9.2 to 8.8;
  • the Infrastructure industry, from 9.4 to 6.8;
  • the South region, from 9.9 to 9.7;
  • the $30-$50 million company size, from 8.4 to 8.2;
  • the $50-$100 million company size, from 10.5 to 9.7; and
  • the greater than $100 million company size, from 10.3 to 10.1.

The Northeast region remained stagnant at 7.4.

ABC’s Construction Confidence Index readings for sales, profit margins and staffing levels increased in March. All three readings remain above the threshold of 50, indicating expectations for growth over the next six months.

   

Tagged categories: Associated Builders and Contractors; Associated Builders and Contractors Inc. (ABC); Associated General Contractors; Associated General Contractors (AGC); Business conditions; Construction; Contractors; Economy; Good Technical Practice; Market; Market data; Market forecasts; Market trends; NA; North America; Program/Project Management

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