Construction Spending Ticks Upward; Highways Down


Construction spending during February 2018 was estimated at a seasonally adjusted annual rate of $1,273.1 billion, 0.1 percent (±1.2 percent) above the revised January estimate of $1,272.2 billion, according to the U.S. Census Bureau. The February figure is 3.0 percent (±1.5 percent) above the February 2017 estimate of $1,235.7 billion.

During the first two months of this year, construction spending amounted to $176.3 billion, 4.4 percent (±1.3 percent) above the $168.9 billion for the same period in 2017.

Spending on private construction was at a seasonally adjusted annual rate of $982.0 billion, 0.7 percent (±1.6 percent) above the revised January estimate of $974.8 billion.

  • Residential construction was at a seasonally adjusted annual rate of $533.4 billion in February, 0.1 percent (±1.3 percent) above the revised January estimate of $532.9 billion.
  • Nonresidential construction was at a seasonally adjusted annual rate of $448.6 billion in February, 1.5 percent (±1.6 percent) above the revised January estimate of $441.9 billion.

In February, the estimated seasonally adjusted annual rate of public construction spending was $291.1 billion, 2.1 percent (±1.6 percent) below the revised January estimate of $297.4 billion.

Highway construction was at a seasonally adjusted annual rate of $88.5 billion, 0.2 percent (±5.4 percent) below the revised January estimate of $88.7 billion.

After an analysis of the new government data by the Associated General Contractors of America, association officials noted that public construction dropped sharply in February and urged federal agencies to move promptly to invest recently approved funding for a variety of construction categories.

"Construction spending in February was marked by healthy gains in most private categories but a widespread and steep downturn in public construction," said Ken Simonson, the association's chief economist. "Year-over-year trends suggest overall expansion, but public investment will depend on how quickly federal agencies follow up on the spending that Congress has authorized.

"All but one of the 13 public construction categories declined for the month," Simonson pointed out. "In particular, the largest public segment – highway and street construction – decreased 0.2 percent from January and 5.1 percent compared with the year-ago level. In contrast, new single- and multifamily construction increased for the month and year-over-year, as did most private nonresidential categories."

Association officials called on federal agencies to act promptly to distribute or spend the construction funds that Congress approved last month as part of an appropriations bill that keeps the government open through September. Officials noted that programs covering highways, other transportation, water and wastewater state revolving funds, and direct federal construction received funding increases after years of spending freezes or cuts, but these authorizations in some cases will expire in less than six months.

"Federal, state and local officials should act quickly to put the newly enacted federal funding to work improving infrastructure," said Stephen E. Sandherr, the association's chief executive officer.

“Construction spending growth tends to reflect the degree to which new project starts exceed project conclusions,” said Associated Builders and Contractors (ABC) Chief Economist Anirban Basu. “In a healthy economy, the expectation is that there will be considerable numbers of project starts and that, as a result, construction spending growth will be vigorous. The economy is certainly healthy judging from a wave of leading indicators, including measures of confidence, employment, new orders and gross domestic product.

“Despite that, nonresidential spending growth remains tepid. Reasons for this trend include capacity constraints that continue to beleaguer contractors struggling to find enough skilled construction tradespeople, estimators and project managers,” said Basu. “But that’s only where the issues facing construction firms and the people who use their services begin. There are also rising interest rates and borrowing costs.

“Concerns regarding rising materials prices are also becoming more intense, particularly in light of the recent enactment of tariffs on steel and aluminum and growing fears of a trade war and materials shortages. Softwood lumber prices, which have been impacted by an ongoing trade dispute with Canada, were up nearly 16 percent over a recent 12-month period. On top of all of this is sporadic growth in public construction spending as government monies continue to be siphoned away to finance underfunded pensions, Medicaid and other public priorities.

“The expectation remains that 2018 will be a solid year for construction spending growth. However, there are a growing number of headwinds, even in the context of a reasonably strong domestic economy,” said Basu. “Elected officials could help support construction spending momentum by reducing the level of uncertainty now emerging from the policymaking environment. Obviously, passage and implementation of the long-awaited federal infrastructure package also would help.”