Non-residential construction spending has grown significantly since the start of the COVID-19 pandemic, but inflation has limited the impact of that spending for the industry, according to Anirban Basu, chief economist at Builders and Associated Contractors.
In a March 27 webinar on the economic state of the industry, Basu pointed to U.S. Census Bureau data showing that total nonresidential construction spending rose 34.8% from February 2020 to January 2024. However, when adjusted for inflation, he said the increase is closer. around 13%.
“Much of the growth in construction spending has not been because construction companies collectively have been providing more services to users of construction services, but because they have been charging more for the services they provide,” Basu said.
Chart courtesy of ABC/Sage Policy GroupMuch of that growth has been driven by forces that are transforming the economy, Basu said. The largest increase in spending among construction sectors since the start of the pandemic is a 187.3% increase in manufacturing construction, according to the Census Bureau.
Basu said he was “too pessimistic last year” in his forecasts, as the economy has avoided going into recession as he and other economists had said was likely. However, the construction market may still have a tumultuous period. Basu said he believes difficulties in obtaining financing can hamper non-public projects, noting the architecture turnover index, which has been below 50, meaning a decline in business, for seven months .
Most contractors surveyed during the webinar said their main challenge now remains the shortage of skilled workers. Basu said he expects the shortage to continue.
“With so many megaprojects and public infrastructure projects lined up for the next few years, we’re going to have this shortage for a long time,” he said.
Some other factors challenging the industry have improved. Basu said supply chains have become largely more reliable since late 2021. And funding from spending bills like the Jobs and Infrastructure Investments Act will continue to boost funding for public projects through 2026.
