The U.S. Census Bureau announced that construction spending during June 2018 was estimated at a seasonally adjusted annual rate of $1,317.2 billion, 1.1 percent (±1.0 percent) below the revised May estimate of $1,332.2 billion. The June figure is 6.1 percent (±1.6 percent) above the June 2017estimate of $1,241.3 billion.
During the first six months of this year, construction spending amounted to $619.9 billion, 5.1percent (±1.2 percent) above the $589.6 billion for the same period in 2017.
In June, the estimated seasonally adjusted annual rate of public construction spending was $297.4 billion, 3.5 percent (±2.0 percent) below the revised May estimate of $308.3 billion.
- Highway construction was at a seasonally adjusted annual rate of $93.9 billion, 1.3 percent (±5.6 percent) below the revised May estimate of $95.1billion.
- Educational construction was at a seasonally adjusted annual rate of $67.9 billion, 11.0 percent (±2.1 percent) below the revised May estimate of $76.3 billion.
Among public infrastructure spending categories, highway and street construction increased 4.2 percent year-to-date. Educational construction inched up 0.1 percent in the first half of the year, while transportation construction (airports, transit, public rail and ports) jumped 11.7 percent.
Spending on private construction was at a seasonally adjusted annual rate of $1,019.8 billion, 0.4 percent (±0.8 percent) below the revised May estimate of $1,023.9 billion.
- Residential construction was at a seasonally adjusted annual rate of $568.3 billion in June, 0.5 percent (±1.3 percent) below the revised May estimate of $570.9 billion.
- Nonresidential construction was at a seasonally adjusted annual rate of $451.5 billion in June, 0.3 percent (±0.8 percent) below the revised May estimate of $453.0 billion.
“There appears to be plenty of demand for construction despite the drop in spending reported for June,” said Ken Simonson, chief economist for the Associated General Contractors of America. “The estimate for May, which was already a record high, was revised sharply upward, as were numbers for April. These revisions show that the June total may be higher than initially reported and that it is wiser to focus on longer-term trends, such as the year-to-date totals for the first half of 2018 compared with the same period in 2017. Those numbers show a healthy increase in spending.”
Association officials said recent steps to reform the federal tax code and reduce regulatory barriers to economic growth appear to be helping boost demand for construction. But they cautioned that growing construction labor shortages and new trade tariffs affecting the price of key construction materials could hamper future sector growth.
“Tax and regulatory reform are helping stimulate new demand for construction projects,” Sandherr said. “But if contractors are forced to raise prices significantly to cope with rising labor and materials costs, many public and private sector clients may scale back investments in new construction projects.”
“The hope is that June’s construction spending setback is merely a statistical aberration,” said Associated Builders and Contractors (ABC) Chief Economist Anirban Basu. “That is certainly a possibility given the recent second quarter gross domestic product report, which among other things indicated extraordinarily rapid growth in the construction of structures. Other data, including the ABC Construction Backlog Indicator, indicate ongoing elevated levels of demand for construction services. Construction employment statistics are also consistent with industry expansion.
“But as tempting as it is to simply relegate June spending data to the back burner, there are other less benign explanations,” said Basu. “One relates to worker productivity. With construction firms suffering grave difficulty finding skilled workers, it may simply be a case of slowed construction service delivery. However, this is not an especially compelling explanation for one month of data. The shortage of human capital is long-lived, and the recent pace of construction hiring has been rapid.
“A more likely explanation is that the recent surge in construction materials prices is resulting in material acquisition delays,” said Basu. “This has the effect of lengthening projects as contractors painstakingly search for the most affordable sources of steel, lumber or other inputs. Since monthly construction spending declines were apparent in both private and public segments, it is also possible that certain projects have been put on hold, with the hope that input prices will eventually decline to lower levels.”