Construction still waiting on strong recovery as July nonresidential spending plateaus

Nonresidential construction spending flattened in July, the latest holdup in the industry's slow economic recovery (Photo courtesy of Reuters)

Construction’s economic recovery is continuing at a slower-than-expected speed, with Associated Builders and Contractors (ABC) reporting that national nonresidential construction spending increased only 0.1% in July to a seasonally adjusted annualized figure of $786.7 billion.

But even those surface numbers don’t show the “weak” of construction recovery’s, according to ABC Chief Economist Anirban Basu.

“The nonresidential construction spending numbers are meaningfully worse than they initially appear,” Basu said. “While the headline number suggests that nonresidential spending was effectively flat in July, the figure does not adjust for inflation. In real terms, the volume of construction services delivered by the nation’s nonresidential contractors declined in July.”

A closer examination of data from the U.S. Census Bureau reveals that spending was down on a monthly basis in six of 16 nonresidential subcategories; although public nonresidential construction’s monthly figure rose 0.6% in July, private nonresidential spending was down 0.2%, three subcategories were unchanged, and total spending was down 4.2% from July 2020.

Basu said that higher materials prices and the worsening skilled labor shortage represent the primary causes of construction’s lack of economic growth this summer.

The Covid-19 pandemic is still affecting supply chains, and materials prices and transportation costs will remain elevated well into 2022, according to Basu’s analysis of ABC’s Construction Backlog Indicator.

“Data indicate that public construction spending has been more negatively affected than private spending,” Basu said while noting that overall nonresidential construction spending is down 4% on a year-over-year basis and public construction spending is down more than 5%.

“That said, there are some private segments that continue to exhibit weakness, due in part to behavioral shifts that have transpired during the public health crisis,” he said. “Spending is down year over year in the lodging, office and commercial segments, and none of these segments exhibited a rebirth of momentum in July.”