News From the AGC of America: Construction Spending Holds Steady in August

Oct. 3, 2016

Construction spending held steady in August compared to July but is up nearly five percent for the first eight months of the year compared to same period in 2015, according to an analysis by the Associated General Contractors of America. Association officials said the new spending figures indicates that the industry’s recovery may be at risk and said new investments in the nation’s aging water systems and other infrastructure could help offset declining spending in certain types of private construction.

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“While demand for construction remains robust, it is no longer growing like it was earlier this year,” said Ken Simonson, the association’s chief economist. “There is little doubt that new public-sector investments in our aging infrastructure could help reinvigorate demand for construction.”

Construction spending in August totaled $1.142 billion at a seasonally adjusted annual rate, essentially unchanged from the month before, Simonson said. He added that the year-to-date increase of 4.9 percent for January through August 2016, compared with the same months of 2015, shows that demand for construction projects remains relatively robust despite some recent monthly declines. But he cautioned that the month-to-month figures indicate that demand for construction is no longer growing like it was earlier this year.

Private nonresidential construction spending decreased 0.4 percent for the month but is up 4.2 percent year-to-date. The largest private nonresidential segment in August was power construction (including oil and gas pipelines), which declined 1.5 percent for the month but up 2.9 percent year-to-date. The next-largest segment, manufacturing, dropped by 1.4 percent for the month and is down 7.4 percent year-to-date. Commercial (retail, warehouse and farm) construction decreased by 2 percent in August and climbed 6.9 percent year-to-date. Private office construction climbed 2.3 percent for the month and 28 percent year-to-date.

Private residential construction spending dropped by 0.3 percent between July and August 2016, but is up 1.4 percent year-to-date. Spending on multifamily residential construction increased by 2.4 percent for the month and remains up 13.9 percent year-to-date, while single-family spending fell 0.9 percent from July to August and is down 1.5 percent year-to-date.

Public construction spending declined 2 percent from a month before and dropped by 8.8 percent year-to-date. The biggest public segment—highway and street construction—decreased by 2.9 percent for the month and is down 8.3 percent year-to-date. The other major public category—educational construction—fell by 0.4 percent in August and dropped 0.8 percent year-to-date.

Association officials said that the new construction spending figures underscore the need for Congress to pass legislation like the Water Resources Development Act to finance repairs to aging water systems. The said that measure, combined with other needed investments in public infrastructure could help offset declining private sector demand and re-invigorate the construction sector’s recovery.

“The construction industry’s recovery appears to have hit a plateau,” said Stephen E. Sandherr, the association’s chief executive officer. “The sector is at the point where new public-sector investments could really help take up the slack being left by declines in some types of private-sector construction activity.”