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Dive Brief:
- Spending on non-residential construction declined 0.2% in June to a seasonally adjusted annual rate of $1.21 trillion, according to an analysis of U.S. Census Bureau data from Associated Builders and Contractors released Thursday.
- Spending fell in almost half of non-residential subcategories in June. Both public and private spending fell by 0.4% and 0.1%, respectively. That decline comes from higher interest rates, tighter credit conditions and a softer economy, Anirban Basu, ABC’s chief economist, said in the statement.
- Despite the recent reduction in spending, many contractors remain optimistic and expect revenue growth over the next six months, according to ABC. However, with interest rates still high, Basu said that “many projects are put on holdlimiting construction starts, suppressing backlog and perhaps eroding current contractor confidence.”
Diving knowledge:
while multimillion megaprojects Across the country continuing to grab headlines, overall nonresidential construction spending appears to have entered a period of stagnation, Basu said.
For example, despite a substantial 19.1% year-on-year increase, spending on manufacturing projects in June was almost unchanged in June, rising 0.1%, according to ABC. Office construction spending was flat, while spending on highways and streets fell 0.4% for the month.
Even non-residential public construction in general, fueled by government dollars, was down 0.4% in June. These limited month-on-month changes overall, even in sectors with strong annual growth, reflect the impact of a high-cost environment, Basu said.
“It’s not a good thing,” he said. “The flattening of momentum has been evident for most of a year, but the impact of higher interest rates, tighter credit conditions and a slowing economy is increasingly evident in the data more recent, which indicate that aggregate spending on non-residential construction is in decline.
The Federal Reserve chose to stand stable interest rates during its July 31 meeting, while signaling the possibility of a rate cut in September. That would help ease some of those current economic pressures, economists say.
Other bright spots in the report are also suggestive construction activity should continue to grow despite a fall in construction spending in June, Ken Simonson, chief economist for the Associated General Contractors of America, said in its own spending release.
For example, spending data center construction rose 1.7% in June and has been rising for 13 straight months, according to the AGC report. Year-on-year growth in the sector also reached 62.4% in June.
Along with data centers, Simonson expects increased spending on manufacturing projects and various infrastructure segments.
