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Construction Spending Sees Yearly Climb, Despite MoM Dip

After steadily increasing over the past year, construction spending in June 2018 set the industry back a step month-over-month (MoM), yet maintained decent figures year-over-year (YOY). On August 1, MarketWatch reported about a 1% drop in June construction spending but more than a 6% climb since last year.

Revised calculations revealed a MoM increase of 1.3% instead of 0.4% from May to June, bringing the seasonally adjusted annual level from $1.31 trillion to $1.32 trillion, the report states. An in-depth analysis by Associated Builders and Contractors (ABC) found that nonresidential spending fell 1.6% MoM but increased just over 4% from June 2017. Public nonresidential spending was hit harder than private spending, the former dropping 3.5% and the latter only 0.3%.

"With construction firms suffering grave difficulty in finding skilled workers, it may simply be a case of slowed construction service delivery," said ABC Chief Economist Anirban Basu in a press release. "However, this is not an especially compelling explanation for one month of data. The shortage of human capital is long-lived, and the recent pace of construction hiring has been rapid."

Instead, Basu noted how rising construction material prices—a nearly 10% gain over last year—can cause delays as contractors wait to find the most affordable deal for steel, lumber and other materials. For example, although manufacturing spending rose just over 1% MoM, the sector saw the second-largest decline YoY at 5.7%, falling behind religious nonresidential construction spending at nearly 14% YoY. Whereas only four sectors of nonresidential construction declined YoY, more than half dropped in spending MoM.

"Since monthly construction spending declines were apparent in both private and public segments, it is also possible that certain projects have been put on hold," Basu said, "with the hope that input prices will eventually decline to lower levels."

—Andrew Michaels, editorial associate

​For the latest construction credit news, visit NACM's Secured Transaction Services.

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Wednesday, 17 October 2018