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Nonresidential Construction Spending Surges in October


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Spending, However, Unchanged on Yearly Basis

According to data released by the U.S. Census Bureau, nonresidential construction spending expanded 2.1% in October, totaling $717.6 billion on a seasonally adjusted basis. The level of spending, however, remains virtually unchanged from a year ago. Ten of the sixteen subcategories experienced positive growth, with educational spending topping the list with an increase of 9.0%. Public safety (6.8%), Office (5.3%), and Conservation and Development (4.3%) were the next highest subcategories. Religious (-3.7%), and Amusement and Recreation (-3.5%) spending saw the largest decreases over the previous month.

The level of spending, however, remains virtually unchanged from a year ago. 

One could scarcely imagine circumstances more consistent with rapid growth in nonresidential construction spending. The U.S. economy is humming, coming up on two consecutive quarters of 3% growth on an annualized basis. Consumers, the driving force of the recovery to date, are more confident than they have been in 17 years.  

Stock prices have surged, due in part to liquidity swirling around the growth. The worldwide economy has not been this healthy for roughly eight decades and global policy makers continue to pursue pro-growth agendas. Interest rates remain extraordinarily low, resulting in greater demand for assets that have the capacity to generate significant income, including commercial real estate. On top of this, there are hopes in corporate America for tax reform, which would presumably accelerate economic growth and bolster corporate profitability.

In October, nonresidential construction rose, which could be expected given broader macroeconomic dynamics. 

In October, nonresidential construction rose, which could be expected given broader macroeconomic dynamics. There were even signs of life in certain publicly-financed categories. Numerous factors, including growing confidence among policymakers in rapidly expanding communities, suggest  construction growth will pick up further next year.. That confidence should translate into more spending on public works. Of course, whether this logic prevails will depend in part on the outcomes associated with tax reform efforts now underway in Washington, D.C. 

Nonresidential Spending Growth, Millions of Dollars, Seasonally Adjusted Annual Rate

Source: U.S. Census Bureau

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