Construction spending during July 2019 was estimated at a seasonally adjusted annual rate of $1,288.8 billion, 0.1% (±1.3%) above the revised June estimate of $1,288.1 billion, according to the U.S. Census Bureau. The July figure is 2.7% (±1.6%) below the July 2018 estimate of $1,324.8 billion. During the first seven months of this year, construction spending amounted to $733.8 billion, 2.1% (±1.2%) below the $749.9 billion for the same period in 2018.
In July, the estimated seasonally adjusted annual rate of public construction spending was $325.7 billion, 0.4% (±2.5%) above the revised June estimate of $324.3 billion. Highway construction was at a seasonally adjusted annual rate of $97.0 billion, 2.7% (±6.4%) below the revised June estimate of $99.7 billion. Educational construction was at a seasonally adjusted annual rate of $73.3 billion, 1.6% (±2.8% above the revised June estimate of $72.1 billion).
Spending on private construction was at a seasonally adjusted annual rate of $963.1 billion, 0.1% (±0.7%) below the revised June estimate of $963.7 billion.
- Residential construction was at a seasonally adjusted annual rate of $506.7 billion in July, 0.6% (±1.3%) above the revised June estimate of $503.5 billion.
- Nonresidential construction was at a seasonally adjusted annual rate of $456.4 billion in July, 0.8% (±0.7%) below the revised June estimate of $460.2 billion.
“Overall spending totals have been fluctuating for more than two years, with divergent patterns for residential, private nonresidential and public construction,” said Ken Simonson, Associated General Contractors of America chief economist. “Although year-to-date construction spending in the first seven months of 2019 combined was less than in the same period last year, most nonresidential and multifamily contractors remain busy and optimistic about future work.”
While public construction spending increased 0.4% for the month, it has increased 5.6% year-to-date. Among the four largest public categories, spending in the first seven months of 2019 jumped 12.0% compared to the same period in 2018 for highway and street construction spending, was unchanged for educational construction and climbed 9.8% for transportation (airports, transit, rail and port) projects.
Association officials said that one reason construction spending declined between June and July is because contractors cannot find enough qualified workers to keep pace with demand. They noted that 91% of construction firms in a survey the association released last week reported they expect to hire hourly craft workers for expansion or replacement in the next 12 months, but 80% of the firms say they are having a hard time filling hourly craft positions. As a result, the drop in construction spending in some nonresidential categories so far in 2019 may indicate some firms are turning down or delaying projects because they cannot find enough qualified workers.
“Construction firms are taking a broad range of steps to boost pay, increase training and become more efficient as they cope with labor shortages,” said Stephen E. Sandherr, the association’s chief executive officer. “Public officials can help by boosting investments in career and technical education and allowing for more immigrants with construction skills to legally enter the country.”
“While there is much discussion regarding the extent to which the U.S. economy has slowed and will slow going forward, these considerations have relatively little to do with today’s nonresidential construction spending data,” said Associated Builders and Contractors Chief Economist Anirban Basu. “Trends in nonresidential construction tend to lag the broader economy by a year to 18 months, which means that today’s construction spending numbers reflect in large measure broader economic dynamics characterizing 2018. Last year was a good one for the economy, persuading many to move ahead with projects.
“Recent construction spending data, therefore, have been impacted by factors more closely related to the industry,” said Basu. “For instance, the recent weakening in certain private construction segments, including office and lodging, are likely due to growing concerns regarding overbuilding and the somewhat higher cost of capital. Public spending growth, despite solid numbers in July, has been more erratic of late. This may have something to do with the looming insolvency of the Highway Trust Fund, which is expected in 2021 without congressional action. There is already evidence that some states have begun to postpone planning for new projects until there is more clarity regarding federal infrastructure spending, evident in the 2.7% spending decline observed in the highway and street category.
“Despite recent slow growth in construction spending, the U.S. construction industry has continued to expand employment levels during the past year,” said Basu. “ABC’s Construction Backlog Indicator continues to show that the average contractor or subcontractor will remain busy over the near term. One of the reasons for relatively slow growth in nonresidential construction spending may simply be that the U.S. contracting community cannot deliver significantly more service in the context of worsening labor/skills shortages. In other words, nonresidential construction volume is already near its peak potential supply. Given that, one wouldn’t expect substantial growth in construction spending even in the context of significantly stronger economic growth.”