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Construction Spending Declines as Decrease in Public, Private Nonresidential Construction Outweighs Strong Pickup in Homebuilding

Tue December 03, 2019 - National Edition

Construction spending declined 0.8 percent in October from September but topped year-ago levels by 1.1 percent, as decreases in private nonresidential, multifamily and public projects outweighed a recent revival in single-family homebuilding, according to an analysis Dec. 2 by the Associated General Contractors of America of new federal spending data. Association officials said that the impact of trade conflicts is harming private construction.

"A drop in mortgage interest rates has given a boost to single-family homebuilding in recent months, but these gains have been offset by weak private nonresidential spending as trade friction drags down U.S. economic growth," said Ken Simonson, the association's chief economist. "Businesses that have been hurt by existing tariffs and retaliatory actions by U.S. trading partners or firms facing uncertainty over future trade policy are likely to hold off on construction projects."

Construction spending totaled $1.291 trillion at a seasonally adjusted annual rate in October, a decrease of 0.8 percent from the September rate but 1.1 percent more than the October 2018 rate, according to estimates the U.S. Census Bureau released. Year-to-date spending for January-October combined fell 1.7 percent from the same months in 2018.

Private residential construction spending declined 0.9 percent for the month but edged up 0.5 percent from a year ago. Single-family homebuilding rose for the fourth consecutive month, rising 1.6 percent from September, although the October rate was 3.1 percent less than in October 2018. Spending on multifamily projects was down 1.6 percent for the month and down 2.1 percent from a year earlier. Spending on residential improvements fell 4.5 percent for the month but increased 8.2 percent over 12 months.

Private nonresidential spending decreased 1.2 percent from September to October and 4.3 percent from a year ago. Major private nonresidential segments experienced mixed year-over-year results. The largest — power construction (comprising electric power generation, transmission and distribution, plus oil and gas fields and pipelines) — climbed 3.6 percent from a year ago. Commercial (retail, warehouse and farm) construction tumbled 17.7 percent. Manufacturing construction inched down 0.2 percent gain. Private office construction spending rose 1.0 percent.

Public construction spending dipped 0.2 percent for the month but jumped 10.2 percent from a year earlier. Among the three largest public categories, spending in October climbed 8.4 percent compared to the October 2018 rate for highway and street construction spending, 9.8 percent for educational construction and 13.0 percent for transportation (airports, transit, rail and port) projects.

Association officials observed that private nonresidential investment has weakened over the past year as trade disputes and uncertainty over future trade policy have had a negative impact on a variety of agricultural, manufacturing, distribution and transportation businesses. They urged the Trump administration to settle disputes promptly.

"Construction firms are at risk of being caught in the crossfire from trade wars unless the government removes tariffs that are hurting the competitiveness of U.S. businesses and gets foreign countries to re-open their markets to U.S. exports," said Stephen E. Sandherr, the association's chief executive officer. "Until that happens, private nonresidential construction is likely to suffer."

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