Construction Spending Dips in March
Construction spending dipped slightly in March, just one month after building activity hit an all-time high. According to the Commerce Department, construction spending slipped 0.2 percent in March to a seasonally adjusted $1.218 trillion. Last month, construction spending rose 1.8 percent to a record high of $1.22 trillion.
“Construction spending totals during the past two months are at the highest levels we have ever seen,” said Stephen E. Sandherr, the Associated General Contractors’ (AGC) chief executive officer. “If the winter weather hadn’t been so mild in much of the country, we would have seen less growth in February and a higher rate of growth in March, but overall demand remains quite robust.”
Despite the slight decline, construction activity in March was the second highest on record. The figure underscores the key role construction is playing in the overall economy, especially in home building. Consumer demand for new homes has increased with low unemployment and rising incomes, however many buyers have been frustrated by limited inventory and rising prices.
“There are at least two tales to tell, and neither one of them is particularly uplifting,” said Associated Builders and Contractors (ABC) Chief Economist Anirban Basu. “One narrative relates to public spending, which remains soft. Even categories in which one might have expected spending growth have not experienced an increase over past year. For instance, one might have anticipated stepped-up spending in the water supply category given the events in Flint, Mich. But spending in that category is down by roughly 14 percent over the past year. Similarly, one might have predicted spending increases in the highway and street category since the Fixing America’s Surface Transportation Act was passed in December 2015. However, spending in that category is down 2.4 percent on a year-over-year basis.
Residential construction climbed 1.2 percent to the highest level since June 2007 , when the housing industry was in the midst of a boom in activity. In the first three months of the year, home construction grew at a 13.7 percent rate, one of the few bright spots in a dismal quarter in which overall growth slipped to just 0.7 percent. That was the weakest showing in three years.
Nonresidential building fell 1.3 percent in March as spending on office buildings and the category that covers shopping centers both fell. Government activity dropped 0.9 percent with weakness in the state and local level. For the first 3 months of the year, construction spending is at higher levels than in 2016.
Spending by state and local governments on construction projects fell 1.4 percent which offset a 4.5 percent rise in the smaller federal government sector.
“Private construction spending has lost momentum as well, perhaps because developers and their financiers are becoming increasingly unnerved by the possibility of mini-bubbles in certain commercial real estate segments,” said Basu. “Many investors may also have adopted a wait-and-see attitude regarding policies coming out of Washington, D.C., including those related to proposed tax reform and infrastructure spending initiatives. Perhaps as a result, office and commercial-related construction spending declined in March. Still, other data suggest lingering momentum in various privately-financed segments, and data from the most recent GDP report indicate that investors continue to invest aggressively in structures. It is for this reason that today’s construction spending release is at least somewhat surprising with respect to private investment in structures. An upward revision to today’s data may be forthcoming.
On Friday, the government reported that gross domestic product increased at a 0.7 percent annual rate in the first three months of the year, constrained by weak consumer spending
The Trump administration has talked about investing $1 trillion over the next decade on a major infrastructure projects to upgrade the nation’s aging highways, airports and bridges. However, he has yet to send Congress a proposal for the program.
“If Washington officials can find a way to enact significant new infrastructure funding, we are likely to see even higher record levels of construction spending for the foreseeable future,” said Sandherr.
