Construction spending dynamics have reversed completely in the last year and a half, according to Associated Builders and Contractors (ABC) Chief Economist Anirban Basu. ABC's analysis of U.S. Census Bureau data shows national nonresidential construction spending declined 0.3% in July compared to June numbers. Even so, total nonresidential spending stood at $748.8 billion on a seasonally adjusted, annualized rate, showing an increase of 5.3% compared to the same time last year. Private nonresidential spending fell 1%, while public nonresidential spending expanded 0.7%, comparatively.
Early on, private construction was expanding in part by abundant financing at very low interest rates. Though private construction numbers are still elevated, they are no longer expanding at the same rate, according to Basu. He points out spending on lodging and office space having hardly any increase and commercial construction's decrease of 3.3%, as evidence.
“By contrast, nonresidential construction segments associated with large public components, including conservation and development, education, highway and street, public safety, and sewage and waste disposal all experienced an uptick in spending in July,” says Basu. “Many states are now running budget surpluses for the first time in years, in part due to surging capital gains tax collections. One result is that more public projects are moving forward. As evidence, construction spending in the water supply category is up 29% on a year-over-year basis, conservation and development (e.g. flood control) by 24%, transportation by nearly 21%, public safety-related spending by 17%, and sewage and waste disposal by 11%."
ABC's analysis implies the economic outlook on public infrastructure spending, even in the absence of a federal infrastructure package, is strong. State and local government finances are predicted to continue to improve to support public construction spending, which is likely to increase in the months ahead. Meanwhile, private construction spending is expected to remain constrained due to recent increases in private borrowing and concerns about communities being overbuilt.