ABC: Nonresidential construction spending dips in May

National nonresidential construction spending was down by 0.6 percent in May, according to an Associated Builders & Contractors (ABC) analysis of data published by the U.S. Census Bureau.

On a seasonally adjusted annualized basis, nonresidential spending totaled $832.5 billion for the month.

Spending was down on a monthly basis in 10 of the 16 nonresidential subcategories. Private nonresidential spending was down 0.4 percent, while public nonresidential construction spending was down 0.8 percent in May.

Nonresidential construction spending is up 1 percent over the past year. Manufacturing saw the largest year-over-year gain, with construction spending increasing 26.3 percent.

“Many contractors continue to report that they are operating at capacity despite a lack of strong nonresidential construction spending recovery,” says ABC Chief Economist Anirban Basu. “That juxtaposition provides solid evidence that the supply side of the U.S. economy remains heavily constrained by worker shortages, domestic and global supply chain disruptions and resulting high prices.

“Since the early months of the pandemic, contractors have reported that they are able to pass along their cost increases to project owners, according to ABC’s Construction Confidence Index,” Basu adds. “But there are growing concerns among industry leaders that the ability to pass along cost increases will dissipate during the months ahead as financial conditions tighten and confidence in economic performance wanes.”

Basu adds that there is an opportunity to squeeze contractor margins moving forward.

“There is growing anecdotal evidence that this is already occurring,” Basu says. “There is also a growing risk of a significant number of project postponements in both private and public construction segments due to high materials prices and labor costs.

“The key to sustaining nonresidential construction’s recovery will be slower inflation,” Basu adds. “As long as inflation remains elevated, monetary policy will continue to tighten and project owners will be less willing to move forward with projects in an effort to preserve cash. Unfortunately, ongoing efforts to limit inflation are likely to result in recession or at least further economic slowing, which will create additional issues for many contractors,” Basu adds. “However, less inflation and more favorable construction materials prices would create a foundation for renewed construction spending vigor.”