Construction Spending Up Through First Five Months of 2020

The U.S. Census Bureau reported that construction spending during May 2020 was estimated at a seasonally adjusted annual rate of $1,356.4 billion, 2.1% (±1.0%) below the revised April estimate of $1,386.1 billion. The May figure is 0.3% (±1.5%) above the May 2019 estimate of $1,352.9 billion.

During the first five months of this year, construction spending amounted to $543.2 billion, 5.7% (±1.2%) above the $513.7 billion for the same period in 2019.

Nonresidential construction was at a seasonally adjusted annual rate of $465.3 billion in May, 2.4% (±0.7%) below the revised April estimate of $476.9 billion.

In May, the estimated seasonally adjusted annual rate of public construction spending was $355.2 billion, 1.2% (±2.0%) above the revised April estimate of $350.9 billion. 

  • Highway construction was at a seasonally adjusted annual rate of $106.6 billion, 2.8% (±6.7%) above the revised April estimate of $103.7 billion.
  • Educational construction was at a seasonally adjusted annual rate of $87.3 billion, 0.1% (±2.0%) above the revised April estimate of $87.2 billion.

Spending on private construction was at a seasonally adjusted annual rate of $1,001.2 billion, 3.3% (±0.7%) below the revised April estimate of $1,035.2 billion. Residential construction was at a seasonally adjusted annual rate of $535.9 billion in May, 4.0% (±1.3%) below the revised April estimate of $558.3 billion.

“Three short-lived factors may have boosted construction spending in May: emergency healthcare projects, acceleration of highway work to make use of the drop in road traffic and the end to some state government shutdown orders,” said Associated General Contractors of America’s (AGC) Chief Economist Ken Simonson. “Unfortunately, these stimuli have now worn off, and there is a high risk that construction spending will soon shrink as state and local governments start a new fiscal year today with large budget gaps that they must close. Too often, they turn to postponing and canceling construction.”

The decrease in May was widespread across private construction categories, which recorded a spending decline of 3.3% from April, following a 3.8% slide from March to April. Public construction spending rose by 1.2% in May, an increase that only partially reversed a drop of 2.7% the month before.

“It is likely that the pickup in highway construction and other public spending that occurred in May will fade as soon as current projects are completed,” Simonson said. “Our latest survey of contractors, conducted June 9-17, found only about one-fifth of respondents had won new or expanded work – unchanged from early May. In addition, nearly one-third of respondents reported that an owner had canceled an upcoming project.”

Association officials said that private-sector funding is likely to continue to remain below pre-coronavirus levels for some time as many owners opt to delay investments amid pandemic-induced uncertainty. Meanwhile, many state and local investments in infrastructure and construction are likely to decline amid falling tax revenues. What is needed is a federal infrastructure measure that can attract broad, bipartisan support in the House and Senate, the association officials noted.

“The best way to get people back to work and to make our economy more efficient and effective for the long run is by improving the nation’s vital infrastructure,” said Stephen E. Sandherr, AGC’s chief executive officer. “Leaders in both parties need to understand that messaging measures may excite the base, but they do nothing to improve roads, fix bridges or modernize water systems.”

“Certain aspects of today’s data release are precisely what was anticipated, while other elements are rather surprising,” said Associated Builders and Contractors (ABC) Chief Economist Anirban Basu. “For instance, the precipitous 5.3% decline in health care-related construction spending is hardly shocking, as many elective surgeries, dental appointments and wellness checkups were postponed, resulting in billions of dollars of losses among medical systems. In addition, many medical systems have experienced large-scale layoffs in an effort to preserve cash balances.

“Other segments negatively affected include lodging, manufacturing and power, which was expected,” said Basu. “A general lack of travel and occupancy has slowed hotel construction. A shrunken global economy and disrupted worldwide supply chains have pummeled industrial construction. And the energy sector has taken a hit from commodity prices that remain significantly lower than pre-crisis levels, truncating demand for new construction. 

“What is surprising is the overall stability of construction spending,” said Basu. “In May, nonresidential construction spending declined by less than 1%, which represents a level of stability not enjoyed by much of the balance of the economy. Spending in a number of categories, mostly public, was higher for the month, including highway/street, public safety, transportation and water supply. Moreover, certain construction segments may experience rapid recovery going forward, including health care, manufacturing and power. For now, construction spending data and ABC’s Construction Backlog Indicator, which stood at 7.9 months in May, show that the industry has managed to remain a bulwark of relative stability in the face of ongoing pandemic-induced economic dislocations.”

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