AGC: Construction spending shrinking, new financing needed

Construction spending plunged in April as government agencies and project owners shut down ongoing work and canceled projects that were about to break ground, according to an Associated General Contractors of America (AGC) analysis of government data.

AGC officials warned that further steep declines are inevitable for public projects unless the federal government acts quickly to invest in needed infrastructure and shore up crumbling state and local budgets.

“Bad though these numbers are, construction spending appears sure to shrink further,” says Ken Simonson, the association’s chief economist. “In our latest survey, 40 percent of contractors report that an upcoming project has been canceled. But this is a great time to undertake needed infrastructure projects, with more availability of labor, lower materials costs and record-low borrowing costs for many public agencies.”

The numbers

Construction spending in April totaled $1.35 trillion at a seasonally adjusted annual rate – the lowest total since November.

There were substantial decreases in spending in each of the major categories tracked by the Census Bureau: public construction spending fell 2.5 percent from March to April, private nonresidential spending by 1.3 percent, and private residential spending by 4.5 percent.

Simonson notes that 10 out of 12 public and 10 out of 11 private nonresidential construction categories in the Census Bureau’s monthly construction spending release declined from March to April. Highway and street construction tumbled by an especially steep amount: 5.2 percent.

“Although there have been scattered reports of acceleration in highway spending, many state and local transportation departments have been postponing or canceling projects as fuel tax and toll revenues plummet,” Simonson says. “The highway construction downturn is likely to intensify in future months because, in many states, April is normally the first month of significant highway spending following winter shutdowns.

“In addition, public educational construction dropped by 2.3 percent from March to April, while public spending on transportation infrastructure slipped by 1.4 percent. All public categories are at risk of further declines unless the federal government fills some of the holes that have opened in state and local government budgets.”

AGC officials say state and local funding is likely to continue to decline over the coming months as government officials address budget shortfalls caused by the coronavirus-related economic lockdowns. They urge federal officials to act quickly to address those funding shortfalls by passing new funding measures for transportation and other types of infrastructure.

Also, AGC officials note that now is a great time to invest in infrastructure with use relatively light and a large pool of available labor to hire.

“Federal officials can help prevent the economic harm that will occur if state and local officials have to cut back on their infrastructure programs,” says Stephen Sandherr, the association’s CEO. “Investing in infrastructure now will help put people back to work in high-paying construction careers while making the economy more efficient and vibrant for years to come.”

Information for this article courtesy of the Associated General Contractors of America.