Surprise Decline in May Construction Spending
There was a surprise in the May construction spending numbers after the industry was one of the first to reopen and rebound from the pandemic. Wells Fargo Securities reported spending has declined nearly 6% since it peaked in February. Announced earlier this week, construction spending dropped 2.1% in May to a seasonally adjusted rate of $1,356.4 billion. This is just slightly above spending from May 2019.
However, construction outlays were up 5.7% during the first five months of the year compared to the same period in 2019.
May 2020 was the second-best showing in the month after May 2018, dating back to 2002. Economists predicted spending would increase by 1% in May, states Reuters. Economists polled by MarketWatch had spending improving by 0.7%.
Overall spending was pulled down by a 3.3% decline in private construction. Private residential construction was also 4% below data from April. Private nonresidential spending was down 2.4% from the previous month. Public construction showed promise, up 1.2% in May, and highway construction was ahead of April by 2.8%.
"Despite this strength, the COVID-19 crisis has put the fiscal health of many state and local government under tremendous pressure," according to Wells Fargo Securities. "Declines in tax revenues will likely lead to large cutbacks in public construction projects this year and next, absent significant federal relief."
-Michael Miller, managing editor