Construction Spending in July Reaches Highest Level Since 2008

All major categories of construction spending increased in July and total construction reached the highest level since December 2008, according to an analysis by the Associated General Contractors of America. Association officials welcomed the robust spending figures, but cautioned that growing demand will put new pressure on an already tight labor market.

“It is encouraging to see signs of a broad-based recovery in private construction along with a recovery—at least for now—in public construction investment,” said Ken Simonson, the association’s chief economist. “Private nonresidential construction should remain strong through the rest of 2014 and beyond, while residential spending is likely to keep growing, though at a more moderate pace. However, funding is still inadequate for needed public infrastructure improvements.”

Construction spending in July totaled $981 billion at a seasonally adjusted annual rate, up 1.8 percent from the June total, which was revised substantially higher than the initial estimate, Simonson noted. The July total was 8.2 percent higher than in July 2013. Private nonresidential spending increased 2.1 percent from June and 14 percent from a year earlier, while private residential spending grew 0.7 percent for the month and 8.0 percent year-over-year.

Public construction spending rose 3.0 percent from June to July and 2.1 percent year-over-year; nevertheless, public construction for the first seven months of 2014 combined remained 0.1 percent below the total for the same period in 2013. “The largest private nonresidential categories showed robust year-over-year growth, as did both single- and multifamily housing,” Simonson commented. “The dominant public segments—highway and educational construction—also did well in July, though their performance has been mixed year-to-date.”

The largest private nonresidential type, power construction—which includes oil and gas fields and pipelines, as well as electric power—soared 7.5 percent in July and 29 percent from a year earlier, Simonson noted. Manufacturing construction jumped 4.4 percent and 25 percent, respectively. Single-family home construction gained 0.5 percent and 9.4 percent, while multifamily spending rose 0.2 percent and 41 percent. Highway and street construction was up 6.9 percent for the month, 3.0 percent year-over-year and 3.1 percent for the first seven months combined. Public educational construction climbed 1.6 percent from June and 0.6 percent from July 2013 but declined 1.5 percent year-to-date.

Association officials said the spending figures were welcome news for the industry, but cautioned that worker shortages are likely to get more severe as demand continues to expand. They noted that a survey the association conducted with SmartBrief found that 25 percent of responding firms report they have already turned down projects because of labor shortages while two-thirds say they are having a hard time finding workers.

“As demand for construction rebounds, many firms are finding that the pool of available workers is pretty shallow,” said Stephen E. Sandherr, the association's chief executive officer. “Retiring older workers, strong demand in other sectors of the economy and few younger people seeking careers in construction are combining to create workforce shortages for many construction firms.”