Construction spending decreased 1.2% from June to July and is down 0.8% compared with July 2019, according to www.abc.org.
For public construction, spending decreased 1.3% for the month and is up 4.4% year-to-date. Private nonresidential spending fell 1% from June to July and is down 4.3% year-to-date.
“There are two primary countervailing forces influencing the trajectory of nonresidential construction spending,” said Anirban Basu, chief economist for Associated Builders and Contractors. “The first is a force for good and involves the reopening of the economy and associated rebound in overall economic activity. Despite the lingering pandemic, third quarter GDP growth is likely to be quite strong. All things being equal, this would tend to strengthen business for contractors.
“However, the second force at work is not benign and appears to be the stronger of the two,” Basu said. “The crisis has resulted in tighter project financing conditions, battered state and local government finances, substantial commercial vacancy and uncertainty regarding the future of key segments, such as office and lodging. And while backlog was strong at the start of the year, contractors indicate that it is now declining rapidly, in part due to abundant project cancellations.”
Basu said another stimulus package could provide some relief for contractors.
“Next year is shaping up to be an especially harsh one for many contractors, especially as some are already indicating that they are nearing the end of their backlog,” Basu said. “The wild card, as is often the case, is Congress. Another stimulus package could go a long way toward improving the trajectory of overall nonresidential construction spending, particularly one with a sizable infrastructure component. The upshot is that declines in nonresidential construction spending are likely even in the context of broader economic recovery.”
