Construction spending decreased 1.8% from January to February and is up 2.5% compared with February 2019, according to www.abc.org.
For public construction, spending decreased 1.5% for the month but is up 7.2% year-to-date. Private nonresidential spending fell 2% from January to February and is down 0.7% year-to-date.
“Data characterizing the economy prior to the coronavirus outbreak continues to trickle in,” says Anirban Basu, chief economist for Associated Builders and Contractors. “While nonresidential construction spending declined in February, according to today’s data release, the decline was modest and overall performance was not substantially different from prior months.
“However, with communities in Massachusetts, Pennsylvania, California and elsewhere recently shutting down certain construction projects in an effort to better support social distancing and with economic activity generally grinding toward a halt, the construction spending data will undoubtedly deteriorate further and faster during the months to come,” Basu continues. “Unfortunately, that is not where the pain will end. Once the crisis is over, hotel chains will be weaker financially, more storefronts will be empty and fewer employers will be interested in relocating to high-end office space, which will result in diminished demand for nonresidential construction services even after the broader economy comes back to life.”
Basu says it is likely many construction projects will be postponed or canceled.
“Typically, nonresidential construction holds up better during the early stages of a downturn as contractors continue to work through their collective backlog, which stood at 8.9 months in January 2020, according to ABC’s Construction Backlog Indicator,” Basu says. “That may still be the case, but, given growing liquidity and solvency problems spreading through the economy, it is quite likely that many construction projects presently on the drawing board will be postponed or canceled. Backlog may disappear quickly as project owners resort to the use of force majeure clauses or other mechanisms to back out of contractual obligations. Time will tell, and eventually the extent to which projects are delayed will be reflected in the construction spending data.”
