Construction Spending Increases, Residential and Public Gains Offset Drop in Private Nonresidential Projects

Construction spending was mixed in October as a rebound in residential and public categories outweighed a downturn in most private nonresidential segments, according to a recent analysis by the Associated General Contractors of America. Association officials noted, however, that public investments in infrastructure remain down compared to last year while private-sector demand should remain robust amid continued economic growth.

“It’s encouraging to see a rebound in public construction in recent months, but most infrastructure categories are down substantially over the past year,” said Ken Simonson, the association’s chief economist. “Meanwhile, private nonresidential construction still appears to have good prospects, assuming the economy continues to expand.”

Construction spending in October totaled $1.173 trillion at a seasonally adjusted annual rate, up 0.5 percent from the month before and up 3.4 percent from the October 2015 level, Simonson said. He added that the year-to-date total for January through October 2016 compared to the first 10 months of 2015 remains positive, with an overall increase of 4.5 percent, as moderate gains in private nonresidential spending (7.7 percent) and residential spending (5.7 percent) offset a slide of 1.5 percent in public outlays.

Public construction spending jumped 2.8 percent from September to October. However, spending on infrastructure for the first 10 months of the year is generally level with, or lower than, the totals for January-October 2015. Public spending on highway and street construction inched up 0.2 percent year-to-date; other transportation facilities such as transit and airports slid 5.2 percent; sewage and waste disposal slumped 8.7 percent; water supply fell 8.0 percent; and conservation and development declined 5.2 percent.

Private nonresidential construction spending dropped 2.1 percent for the month, but the year-to-date total for most project types rose. The largest private nonresidential segment in October was power construction (including oil and gas pipelines), which plunged 4.3 percent for the month but is up 7.2 percent year-to-date. The next-largest segment, manufacturing, decreased 2.4 percent for the month and is down 3.1 percent year-to-date. Commercial (retail, warehouse and farm) construction declined by 2.4 percent in October but climbed 9.0 percent year-to-date. Private office construction fell 2.0 percent for the month but soared 28 percent year-to-date.

Private residential construction spending increased by 1.6 percent between September and October and rose 5.7 percent year-to-date. Spending on multifamily residential construction increased by 2.8 percent for the month and 17.8 percent year-to-date, while single-family spending also climbed 2.8 percent for the month and rose 5.1 percent year-to-date.

Association officials said they were optimistic that the incoming Trump administration’s plans to reform the tax code, cut needless regulatory burdens and invest in aging infrastructure would help boost overall construction demand. They added that many construction firms are being squeezed by increasing healthcare costs and are eager to see new measures out of Washington that successfully manage rising insurance costs.

“Reforming the tax code should encourage new private-sector investments in construction while less red tape and more reasonable health care costs will free up capital for contractors to hire more workers and acquire more equipment,” said Stephen E. Sandherr, the association’s CEO. “The President-elect’s pro-growth agenda, combined with possible new investments in public infrastructure, could make 2017 a very good year for the construction industry.”