Non-residential construction spending drops slightly in May, ABC says

National non-residential construction spending fell 0.6% in May, according to a Builders and associated contractors analysis of data released today by the US Census Bureau. On a seasonally adjusted annualized basis, non-residential spending totaled $832.5 billion for the month.

Spending was down on a monthly basis in 10 of the 16 non-residential subcategories. Private non-residential spending fell 0.4%, while government non-residential construction spending fell 0.8% in May. Non-residential construction spending rose 1.0% over the past year, although spending fell in 10 of 16 categories during this period. The best-performing sector was manufacturing, a segment in which construction spending rose 26.3% year-over-year.

“Many contractors continue to report that they are operating at full capacity despite the lack of a strong recovery in non-residential construction spending,” said ABC chief economist Anirban Basu. “This juxtaposition provides strong evidence that the supply side of the U.S. economy remains severely constrained by labor shortages, domestic and global supply chain disruptions, and resulting high prices.

“Since the early months of the pandemic, contractors have reported that they are able to pass on their cost increases to owners, according to ABC Construction Confidence Index“, Basu said. “But industry leaders are increasingly concerned that the ability to pass on cost increases will dissipate in the coming months as financial conditions tighten and confidence in economic performance declines.

“A key implication is that contractor margins could be squeezed in the future, and there is growing anecdotal evidence that this is already happening,” Basu said. “There is also a growing risk of a significant number of project postponements in the private and public construction segments due to the strong material prices and labor costs.

“The key to supporting the recovery in non-residential construction will be slower inflation,” Basu said. “As long as inflation remains high, monetary policy will continue to tighten and project owners will be less inclined to move forward with projects in an effort to preserve cash. Unfortunately, ongoing efforts to limit the Inflation is likely to lead to a recession or at least further economic slowdown, which will create additional problems for many contractors, however, lower inflation and more favorable building material prices would create a basis for renewed strength in spending. of construction.

Courtesy of ABC.
Total expenditure on non-residential construction
Courtesy of ABC.

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