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Construction Spending, Highway Construction Down in October

The U.S. Census Bureau announced that construction spending during October 2019 was estimated at a seasonally adjusted annual rate of $1,291.1 billion, 0.8% (±1.0%) below the revised September estimate of $1,301.8 billion. The October figure is 1.1% (±1.5%) above the October 2018 estimate of $1,277.4 billion. During the first 10 months of this year, construction spending amounted to $1,086.5 billion, 1.7% (±1.2%) below the $1,105.2 billion for the same period in 2018.

In October, the estimated seasonally adjusted annual rate of public construction spending was $334.8 billion, 0.2% (±1.6%) below the revised September estimate of $335.6 billion, but jumped 10.2% from a year earlier. 

Highway construction was at a seasonally adjusted annual rate of $95.0 billion, 2.2% (±3.9%) below the revised September estimate of $97.1 billion. Among the three largest public categories, spending in October climbed 8.4% compared to the October 2018 rate for highway and street construction spending, 9.8% for educational construction and 13.0% for transportation (airports, transit, rail and port) projects.

Spending on private construction was at a seasonally adjusted annual rate of $956.3 billion, 1.0% (±0.7%) below the revised September estimate of $966.1 billion. Residential construction was at a seasonally adjusted annual rate of $508.2 billion in October, 0.9% (±1.3%) below the revised September estimate of $512.6 billion. 

Nonresidential construction was at a seasonally adjusted annual rate of $448.1 billion in October, 1.2% (±0.7%) below the revised September estimate of $453.5 billion.

“A drop in mortgage interest rates has given a boost to single-family homebuilding in recent months, but these gains have been offset by weak private nonresidential spending as trade friction drags down U.S. economic growth,” said Associated General Contractors of America Chief Economist Ken Simonson. “Businesses that have been hurt by existing tariffs and retaliatory actions by U.S. trading partners or firms facing uncertainty over future trade policy are likely to hold off on construction projects.”  

Association officials observed that private nonresidential investment has weakened over the past year as trade disputes and uncertainty over future trade policy have had a negative impact on a variety of agricultural, manufacturing, distribution and transportation businesses. They urged the Trump administration to settle disputes promptly.

“Construction firms are at risk of being caught in the crossfire from trade wars unless the government removes tariffs that are hurting the competitiveness of U.S. businesses and gets foreign countries to re-open their markets to U.S. exports,” said Stephen E. Sandherr, the association’s chief executive officer. “Until that happens, private nonresidential construction is likely to suffer.”

“At this point, economic indicators are providing mixed signals about the U.S. construction industry’s trajectory,” said Associated Builders and Contractors (ABC) Chief Economist Anirban Basu. “Today’s release suggests that the industry’s spending cycle is winding toward a close and has been for about six months. Yet, according to the October employment data or ABC’s Construction Backlog Indicator the story is very different. Those data tell the tale of an industry still wrestling with enormous levels of work and ongoing labor shortages.

“Moreover, though overall nonresidential construction spending is a bit lower than it was six months ago, there are still segments that are performing well,” said Basu. “A number of public construction segments experienced solid growth on monthly and annual bases, including public safety, conservation/development (e.g. flood control), educational and water supply. With state and local government budgets still generally healthy, spending on public works will conceivably remain elevated for the foreseeable future.

“The primary source of weakness has been private construction,” said Basu. “This is consistent with recent readings of ABC’s Construction Confidence Index and a number of other leading indicators. Among the segments softening the fastest are the manufacturing and commercial segments, which are both down on monthly and year-ago bases. Commercial construction is down more than 16% over the past year, which coincides with the fact that 2019 will set a record for store closings in the U.S. as e-commerce continues to gobble up market share. Lodging and office-related construction has also slowed of late, likely because developers have already exhausted many of the best investment opportunities.”