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Nonresidential Construction Inches Higher in December

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According to data released by the U.S. Census Bureau, nonresidential construction spending expanded 0.8 per cent in December, totaling $720.4 billion on a seasonally adjusted basis. This means the pace of nonresidential spending has been increasing for the last five months. Nonresidential spending grew 0.1 per cent on a year-over-year basis, and it is at its highest level since March. Private nonresidential construction spending increased 1.1 per cent for the month but is down 2.5 per cent year-over-year; public nonresidential spending increased 0.4 per cent for the month and 4.4 per cent for the year. Spending in the power and manufacturing categories, which are two of the largest nonresidential subsectors, contracted by a combined 10.3 per cent, or $18.2 billion, since December 2016.

Private nonresidential construction spending increased 1.1 per cent for the month. 

While data releases are important for many reasons. They can help us understand what has been happening or what changes have occurred. Their principal value lies in clarifying our shared understanding of the probable future. Today’s data release, while interesting and essentially confirming the existence of the ongoing construction expansion cycle, is less useful than usual. The obvious reason is that the December data reflect a pre-existing pattern of construction spending. The future is likely to represent a departure from prior trends, in large measure because of the recently enacted tax reform.

Even before the U.S. enacted its reform, global and domestic financial systems were flush with liquidity and capital. The tax cut will further bolster liquidity and confidence, which will ultimately translate into more construction starts and spending. If long-awaited progress is made along the dimension of infrastructure spending, the construction recovery will likely transition from solid to spectacular. Note that the transportation category has already expanded by 12.9 per cent on a year-over-year basis. Over much of the past three years, spending growth has generally been concentrated in a number of key private construction segments while public construction has tended to lag. 

Spending growth has generally been concentrated in a number of key private construction segments while public construction has tended to lag. 

Of course, industry insiders are scratching their collective heads regarding how to amass enough human capital to actually deliver construction services on-time and on-budget. Frankly, that’s a mystery. The implication is that any infrastructure package must be accompanied by a package that helps expand apprenticeship programs, steps up investment in 2-year colleges, encourages high schools to supply career & technical education, and encourages more people to leap into the U.S. labor force.

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

 . Source: U.S. Census Bureau

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