Nonresidential Spending Inches Lower in July, June Data Upwardly Revised to Eight-Year Record

WASHINGTON, D.C. – Nonresidential construction spending inched 0.3 percent lower in July largely due to a significant upward revision to June’s spending figure, according to analysis of U.S. Census Bureau data recently released by Associated Builders and Contractors. Nonresidential spending totaled $701.4 billion on a seasonally adjusted annualized basis in July, the second highest month since November of 2008, right behind June, which was revised upward from $682 billion to $703.5 billion. Public nonresidential spending continued to falter, declining 3.2 percent for the month and 6.5 percent for the year.

“A number of factors have suppressed nonresidential construction spending over roughly the past year,” said ABC Chief Economist Anirban Basu. “First and foremost is the lack of momentum in public spending, as governors and other policymakers wrestle with surging Medicaid expenditures, underfunded pensions and other priorities. This lack of public investment continues despite obvious deficiencies in water, road and other forms of infrastructure. The fact that all but two of the 12 public nonresidential public subsectors declined in July shows that the malaise is widespread.

“The second emerging factor pertains to tightening commercial real estate standards, perhaps induced by growing regulatory pressures,” said Basu. “There is growing concern that key commercial real estate segments are in the process of being overbuilt, particularly in America’s largest cities, which are most likely to attract significant levels of foreign investment. Announcements by Macy’s and other retailers regarding the closing of stores may serve to further suppress commercial activity. In other words, the momentum in commercial real estate segments would be even greater but for these reasons. While office, lodging and commercial segments remain among the best performers in terms of triggering nonresidential spending growth, these segments may not be quite as strong going forward.

“That said, there are some positive factors at work. The housing sector has begun to meaningfully improve, translating into more government revenue in the form of permitting fees and property tax collections,” said Basu. “The nation also continues to add jobs in substantial numbers, which helps to fuel construction of distribution centers and in other key growth segments. Interest rates remain low, and banks need to expand lending activity in order to grow earnings. These factors were certainly at work in June when construction spending reached a historically high level.”