GDP report shows increasing positivity for nonresidential construction

Nonresidential fixed investment grew 5.5 percent in the third quarter after expanding 9.7 percent in the second quarter, according to the Bureau of Economic Analysis‘ Oct. 30 gross domestic product (GDP) report. It has now expanded by greater than 5 percent in four of the past five quarters. In addition, investment in equipment increased 7.2 percent, while investment in nonresidential structures increased 3.8 percent.

Real gross domestic product (GDP) expanded 3.5 percent (seasonally adjusted annual rate) during the third quarter, following a 4.6 increase in the second quarter.

“It has been rare for the U.S. economy to record two consecutive good quarters since the recovery began in mid-2009,” said Associated Builders and Contractors Chief Economist Anirban Basu. “The dominant pattern has been one of a good quarter followed by a bad quarter. This lack of consistent momentum has also been seen with construction spending growth and in other leading indicators, such as the Architecture Billings Index and ABC’s own Construction Backlog Indicator.”

“However, the improving confidence of consumers, business owners, and real estate developers, among others, suggests that additional momentum is likely,” Basu said. As an example, the Consumer Confidence Index attained a seven-year high in October. The implication is that nonresidential construction spending should continue to recover, with growth continuing to be concentrated in privately financed segments.”

ABC graph residential construction

The following segments expanded during the third quarter and/or contributed to GDP:

  • •Personal consumption expenditures added 1.2 percent to GDP after contributing 1.8 percent in the second quarter.
  • •Spending on goods grew 11 percent after expanding 14.3 percent in the prior quarter.
  • •Real final sales of domestically produced output, minus changes in private inventories, increased 4.2 percent after a 3.2 percent increase in the second quarter.
  • •Federal government spending expanded by 10 percent following a 0.9 percent decrease in the prior quarter.
  • •Nondefense spending expanded 0.5 percent after decreasing by 3.8 percent in the second quarter.
  • •National defense spending expanded 16 percent after inching up 0.9 percent in the previous quarter.
  • •State and local government spending expanded 1.3 percent during the third quarter after growing 3.4 percent in the second quarter.

To view the previous GDP report, click here.