Spending on U.S. construction stable near record highs
By Larry StewartMarch 08, 2023
The value of construction put in place in the U.S. stabilized in January, along with fading expectations of a 2023 recession.
Total construction spending slipped 0.1 percent to an annual rate of $1.826 trillion, as declines in single-family homebuilding and public construction offset gains from private nonresidential construction.
Analysis by the Associated General Contractors of America of new federal data revealed spending on private residential construction decreased for the eighth consecutive month in January, by 0.6 percent. Single-family homebuilding was down 1.7 percent from December, multifamily construction rose 0.4 percent and renovations to owner-occupied houses rose 0.3 percent.
Manufacturing spending carries the day
At its annual rate of $856.9 billion in January, U.S. spending on residential construction is 43 percent above the pre-pandemic peak, and has grown nearly 39 percent since housing took off in July of 2020.
“Nonresidential construction spending inched higher to start the year (by 0.3% in January) and is just below the all-time high established in November,” said Associated Builders and Contractors Chief Economist Anirban Basu. “On a year-over-year basis, spending in the nonresidential sector continues to outpace inflation. That’s largely attributable to strength in the industrial segment; manufacturing-related construction spending surged 5.9% in January and is up by an astonishing 53.6% since January 2022. With the CHIPS and Science Act directing $280 billion into semiconductor manufacturing and an ongoing desire to reshore manufacturing capacity, the segment should continue to thrive.
“Excluding manufacturing-related construction, nonresidential spending actually declined in January,” said Basu. “A combination of headwinds, including severely elevated borrowing costs, ongoing labor shortages and still-high input costs are likely to blame. Despite these factors and a gloomy economic outlook, a majority of contractors continue to expect their sales to increase over the next six months, according to ABC’s Construction Confidence Index.”
The nonresidential opportunity
Spending on private nonresidential construction increased 0.9 percent in January, while public construction investment declined 0.6 percent.
Commercial construction—comprising warehouse, retail, and farm construction—decreased 3.1 percent in January. Highway and street construction decreased 1.0 percent. Spending on power construction rose 0.9 percent.
Among other categories that are expected to receive funding or tax credits under federal legislation, investment in transportation facilities rose 1.7 percent. Outlays for sewage and waste disposal construction declined 2.5 percent, while spending on water treatment infrastructure decreased 5.9 percent.
Despite a nonresidential construction industry working near all-time highs, AGC officials expressed frustration that a lack of guidance on projects eligible for tax credits and incomplete or contradictory information about “Buy America” requirements have held up billions of dollars in infrastructure project awards. They urged the Biden administration to finalize rules for awarding projects under the Infrastructure Investment and Jobs Act, which became law in 2021, and the Inflation Reduction Act, which was enacted in August of 2022.
“Laws enacted more than six months ago created unprecedented funding and tax credits for a wide range of transportation, environmental, energy and manufacturing projects,” said Ken Simonson, AGC’s chief economist. “But few contractors have actually won contracts yet.”