Dive brief:
- Non-residential construction spending decreased by 0.4% in January at a seasonally adjusted annual rate of $1.19 trillion, according to the Associated Builders and Contractors analysis of U.S. Census Bureau data.
- January’s decline finally marks the end of a 19-month streak of construction spending growth, the report said. Still, contractor confidence remains high, suggesting a likely pick-up in construction spending in the near term, said Anirban Basu, ABC chief economist.
- “Despite January’s disappointing number, non-residential construction spending has still increased by more than 17% over the past year,” Basu said in the statement. “Given this year-on-year strength and the fact that most contractors expect their sales to increase over the next six months, according to the ABC Construction Confidence Index, spending is likely to recover during the next few months.”
Diving knowledge:
The fall, after more than a year and a half of growth in construction spending, comes from two factorssaid Ken Simonson, chief economist for the Associated General Contractors of America.
First, severe weather across much of the United States likely reduced outdoor construction activities, affecting sectors such as highways, sewers and wastewater and water supply, as well as conservation and development projects such as rivers, ports and parks.
“The decline in January is more likely due to bad weather than to overall weakness in demand,” Simonson said.
Basu echoed that sentiment in the ABC report, highlighting the role of weather-related factors in the decline.
According to data from the US Census Bureau, spending in the sectors most exposed to severe weather decreased. For example, roads and streets declined by 2.2% in January, while water supply projects fell by 2% and sewer construction fell by 1.1%. Public non-residential construction fell 1% in January, the data showed.
Second, high borrowing costs continue to hamper overall construction activity, particularly in private construction projects, Simonson said.
“High financing costs and tighter lending standards are reducing investment in income-driven projects for which rents are flat or falling in many markets,” Simonson said in an email to Construction Dive. “[That includes] flats, warehouses, offices, shops and accommodation.”
According to Wells Fargo report. Ten of the 16 non-residential categories posted declines, according to ABC.
However, Basu noted that construction spending in the manufacturing category continued to increase in January. The sector rose 2.1% in January, the most of any non-residential construction sector in the industry, according to data from the US Census Bureau.
Manufacturing now accounts for nearly $1 of every $5 in nonresidential construction spending, Basu said.
