Nonresidential construction plunges again, ABC says

But jobs data leaves a ‘muddied’ picture of sector

Spending nationally on nonresidential construction fell 1.7 percent in July, totaling $688.4 billion, according to an analysis by Associated Builders and Contractors of data released by the U.S. Census Bureau.

Weakness in spending was widespread, ABC said, with 13 of the 16 nonresidential subsectors contracted for the month. Only the public safety and power categories experienced monthly increases, while the highway and street category remained unchanged for the month. However, May and June nonresidential spending was revised upward by a collective $11 billion.

While the outlook looks unfavorable, ABC Chief Economist Anirban Basu said other data “have muddied, not clarified, our collective understanding of how well the nation’s nonresidential construction sector is performing.

For instance, he said, hiring among nonresidential construction firms was “brisk” in August, said Basu, with job growth “significant among nonresidential construction specialty trade contractors and heavy and civil engineering firms, among others. Interpreted independently, this would suggest growing activity in private and public segments.”

He added, however, that the most recent construction spending report “points in precisely the opposite direction.  Based on that data, nonresidential construction activity has been trending lower since early 2017. A number of private segments that had been generating significant growth in opportunities for contractors saw activity dwindle in July, including office (down 1.3 percent), lodging (down 2.7 percent), and amusement and recreation (down 1.4 percent). For economists and other stakeholders, the question now is whether the jobs report tells the tale or today’s spending data are a better indicator.”

Basu added that, “based on consideration of other factors, including leading indicators, the narrative suggesting that construction activity continues to rise seems more reasonable. Anecdotally and in survey data, many nonresidential construction firms continue to report healthy backlog and are looking forward to an active 2018. Moreover, recent events in Texas and Louisiana imply that negative trends in nonresidential construction spending will be reversed as rebuilding commences.”

Categories: Real Estate & Construction