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Dive brief:
- Non-residential construction spending declined 0.2 percent in July 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 Tuesday.
- The drop marks the second consecutive month of declines, although the level remains just 0.4 percent below the all-time high set in May, said Anirban Basu, ABC chief economist.
- “While Hurricane Beryl, which disrupted construction activity on the Gulf Coast in early July, contributed to the weak construction spending data for the month, the cumulative effect of high interest rates likely bear more blame,” Basu said in the statement. “This is particularly true for private sector non-residential spending, which fell 0.4% during the month and has only increased 4.5% over the past year.”
Diving knowledge:
Labor shortages, along with macroeconomic headwinds, continue to weigh on construction momentum, according to an Associated General Contractors of America Report.
For example, about 94% of companies with openings for hourly craft workers reported difficulty filling these positions, according to a recent AGC and Arcoro workforce survey. This is an increase from the 88% of companies that reported difficulties in the association’s 2023 survey.
“Almost all spending categories show increases from a year ago, but have fluctuated in recent months,” said Ken Simonson, AGC’s chief economist. “Our labor force survey suggests that this pattern is partly due to a worsening shortage of skilled workers.”
Spending fell on a monthly basis in 11 of 16 non-residential subcategories, according to data from the US Census Bureau. Private nonresidential spending fell 0.4%, while public spending on nonresidential construction rose 0.2% in July.
Ongoing economic challenges have also tempered expectations for future growth, with many contractors feeling the pressure of persistently high interest rates.
“Less than half of contractors expect their sales to increase over the next six months, according to the ABC’s construction confidence index, a clear indication that the industry is eagerly awaiting lower interest rates.” Basu said. “Fortunately, the Federal Reserve is almost certain to begin lowering interest rates at its September meeting. The remaining question is whether it will be a cut of 25 basis points or 50 basis points.”
