Construction worker Photo by Drew Angerer/Getty Images

Contractor Associations See Construction Down on Private Sector Demand Weakness

Analyses of new data from the U.S. Census Bureau showing construction spending in March took a step back from February but remained well above the levels seen a year ago elicited comments from both the Associated General Contractors of America (AGC) and Associated Builders and Contractors (ABC).

Census reported construction spending in March of $1.285 trillion, down 1.7% from the February level of $1.306 trillion but 3.6% above spending seen in March 2017.

AGC raised the concern that tariffs and price increases on steel and aluminum may be a factor in slowing private sector demand.

“The administration's new steel tariffs appear to already be having a negative impact on demand for many types of construction services,” said Stephen E. Sandherr, the AGC's chief executive officer. “Not only are contractors getting squeezed by higher prices for steel and aluminum products, but it seems many private sector developers are rethinking some investments amid growing fears of a trade war.”

The monthly construction spending declines came as private-sector demand for health care, commercial, manufacturing and lodging construction all declined between February and March, AGC said. The private sector funding declines were too large to offset the modest increase in public sector funding, particularly for highway and street construction, between February and March.

ABC meanwhile focused its attention on nonresidential construction where spending declined 0.3% in March to $740.9 billion from February’s upwardly revised $742.8 billion but remains 2.5% above year-ago levels. Private sector nonresidential construction spending fell 0.4% on a monthly basis, but rose 2.2% from a year ago, while public sector nonresidential spending remained unchanged in March, but it is up 2.9% year-over-year.

“The nonresidential construction spending data emerging from the Census Bureau continue to be a bit at odds with other data characterizing growth in the level of activity,” said ABC’s Chief Economist Anirban Basu. “For instance, first quarter GDP data indicated brisk expansion in nonresidential investment. Data from ABC’s Construction Backlog Indicator, the Architecture Billings Index and other leading industry indicators have also been suggesting ongoing growth. Despite that, private nonresidential construction spending is up by roughly the inflation rate, indicating that the volume of services delivered over the past year has not expanded in real terms.” Basu went on to say that most economists expected a soft March based on weather conditions in the Northeast and Midwest that affected construction employment levels as well.

Basu advised construction industry leaders to remain upbeat based on a host of leading indicators pointing to increased business investment while keeping an eye on emerging risks including materials costs, particularly in softwood lumber, steel and aluminum, and wage pressures.

“The challenge for construction CEOs and others, therefore, is to prepare for growing activity in the near-term, but for something potentially rather different two to three years from now,” he concluded.

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