Drop in Nonresidential Construction Offsets Residential Spending Gains as Growing Number of Projects Cancel
Association Officials Warn that Demand for Nonresidential Construction Will Slide Further without New Federal Relief Measures, Citing New Data Showing Most Contractors Had Projects Delayed or Cancelled
A small increase in total construction spending in September masked a widening gap between declines in most nonresidential segments and robust gains in residential construction, according to an analysis by the Associated General Contractors of America of government data. Association officials warned nonresidential construction is headed for an even steeper slump unless officials in Washington enact relief promptly, noting that their latest industry survey found three out of four respondents had experienced a postponed or cancelled project since the start of the pandemic.
“The September spending report shows the gulf between housing and nonresidential markets is growing steadily wider,” said Ken Simonson, the association’s chief economist. “In our October survey, 75 percent of respondents reported a postponed or cancelled project, up from 60 percent in August and 32 percent in June.”
Construction spending in September totaled $1.41 trillion at a seasonally adjusted annual rate, an increase of 0.3 percent from the pace in August and 1.5 percent higher than in September 2019. Private and public nonresidential spending slumped by a combined 1.6 percent since August and 4.4 percent from a year earlier, while private residential spending climbed by 2.8 percent for the month and 9.9 percent year-over-year.
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Private nonresidential construction spending declined for the third consecutive month, falling 1.5 percent from August to September, with decreases in nine out of 11 categories. The largest private nonresidential segment, power construction, declined 2.2 percent for the month. Among the other large private nonresidential project types, commercial construction — comprising retail, warehouse and farm structures — slid 1.9 percent, manufacturing construction declined 2.1 percent, and office construction rose 0.3 percent. Simonson noted that the office figure was likely inflated by inclusion of data centers, a segment that appears to have held up well.
Public construction spending fell 1.7 percent in September, the fourth monthly decline in a row. The largest public category, highway and street construction, tumbled 5.4 percent for the month. Among other large public segments, educational construction increased 2.0 percent for the month, while transportation construction dipped 0.3 percent.
Private residential construction spending increased for the fourth-straight month, rising 2.8 percent in September. Single-family homebuilding soared 5.7 percent for the month, while multifamily construction spending rose 1.2 percent and residential improvements declined 0.4 percent.
Association officials noted that the coronavirus was having a significant, negative impact on most commercial construction firms. In addition to widespread project delays and cancellations, the association’s recent survey found most contractors do not expect to expand their headcount during the next 12 months because of the pandemic. Many contractors report they are looking to Washington to enact new infrastructure investments and liability reforms to offset the ongoing impacts of the coronavirus.
“The pandemic is suppressing demand for new office buildings, hotels and shopping centers even while it inspires many people to build bigger homes,” said Stephen E. Sandherr, the association’s chief executive officer. “Without new federal investments in infrastructure and other needed relief measures, commercial firms will have a hard time retaining staff or investing in new equipment and supplies.”
Tags: Associated General Contractors of America