Nonresidential Construction Spending Continues Decline Amid Supply Chain, Labor Challenges

Overall construction spending declined in May compared to the prior month, driven by continued drops in nonresidential construction activity as firms struggle with supply chain disruptions, rising materials prices and labor shortages, according to an analysis of new federal construction spending data by the Associated General Contractors of America. Officials with the association called on the Biden administration to remove tariffs on key construction materials, allow unemployment supplements that are keeping people out of the workforce to expire and take steps to address supply chain backups.

 

“Many construction firms would likely be even busier if only they could find materials for their projects and workers for their teams,” said Stephen E. Sandherr, the association’s CEO. “Ending a program that is basically paying people not to work will help, especially if the administration also removes tariffs that are driving prices up on key construction materials.”

 

Construction spending in May totaled $1.55 trillion at a seasonally adjusted annual rate, a decrease of 0.3% from the pace in April, but 7.5% higher than the pandemic-depressed rate in May 2020. As has been true for the past several months, residential construction saw year-over-year gains while non-residential construction spending lagged. The residential construction segment climbed 0.2% for the month and 28.2% year-over-year.

 

Private nonresidential construction spending fell 1.1% from April to May and 5.8% since May 2020, with year-over-year decreases in all 11 subsegments. The largest private nonresidential category, power construction, fell 1.2% year-over-year and 1.6% from April to May. Among the other large private nonresidential project types, commercial construction — comprising retail, warehouse and farm structures — retreated 2.6% year-over-year and 0.7% for the month. Manufacturing construction fell 3.2% from a year earlier and 2.7% from April. Office construction decreased 8.3% year-over-year but remained flat from April.

 

Public construction spending plunged 8.7% year-over-year and 0.2% for the month. Among the largest segments, highway and street construction declined 4.3% from a year earlier, although spending rose 1.4% for the month. Public educational construction decreased 14.2% year-over-year and 1.9% in May. Spending on transportation facilities fell 10.4% over 12 months and 1.9% in May.

 

Association officials noted that firms in states that have ended the unemployment supplements have experienced an increase in the number of workers looking for employment. They added that firms in other parts of the country are still struggling to find qualified workers to hire. In addition, supply chain backups and rising materials prices are also hurting the industry. In response, the association released the third edition of its Construction Inflation Alert to inform project owners and government officials about the threat to project completion dates and contractors’ financial health.

 

“Being able to find workers is important, but contractors also need materials delivered on time and at a reasonable cost, to be successful,” Sandherr said.