Public Works Construction Up, Commercial Down

//Public Works Construction Up, Commercial Down

Public Works Construction Up, Commercial Down

The good news is that public works construction activity jumped up in mid-summer this year—the bad news—overall construction activity declined fractionally.

Based on numbers from the U.S. Census Bureau, total nonresidential spending stood at $748.8 billion on a seasonally adjusted, annualized rate in July, an increase of 5.3 percent from the same time last year. Private nonresidential spending fell 1 percent in July, while nonresidential public spending expanded 0.7 percent.

“Construction spending dynamics have reversed almost completely during the past 12 to 18 months,” said Anirban Basu, chief economist for Associated Builders and Contractors about the new numbers. “Earlier in the cycle, private construction expanded briskly, driven in part by abundantly available financing at very low-interest rates.”




Private work cooling?

Basu’s analysis shows that while private construction volumes continue to be elevated, they are no longer expanding at quite the same rate—an indicator that either the economy is cooling or, the “wall of worry” for construction investment is getting worse. For instance, construction spending on lodging and office space barely budged for July, while commercial construction, such as fulfillment and shopping centers, fell 3.3 percent.

“By contrast, nonresidential construction segments associated with large public components, including conservation and development, education, highway and street, public safety, and sewage and waste disposal all experienced an uptick in spending in July,” said Basu. “Many states are now running budget surpluses for the first time in years, in part due to surging capital gains tax collections. One result is that more public projects are moving forward.”

As evidence, construction spending increased in the following categories:

  • Water supply category is up 29 percent on a year-over-year basis,
  • Conservation and development (e.g., flood control) by 24 percent,
  • Transportation by nearly 21 percent,
  • Public safety-related spending by 17 percent and
  • Sewage and waste disposal by 11 percent.

“The implication is that the economy’s strong performance is increasingly translating into infrastructure spending, even in the absence of a federal infrastructure package,” said Basu. “Given recent economic and financial market performance, there is every reason to believe that state and local government finances, though still fragile in many instances, will continue to improve. That strongly suggests public construction spending will continue to progress during the months ahead.”

Another reason—46 of the 50 states (like California) have a budget fiscal year that starts July 1, which means fresh money pours into agency coffers at that time, giving a bump to public works activity.

In contrast, private construction spending growth is more likely to remain constrained for some additional reasons, including recent increases in private borrowing costs (i.e. rising interest rates) and concerns that segments in certain communities are now overbuilt or approaching overbuilt status.

By |2018-09-25T21:55:35+00:00September 18th, 2018|Blog|0 Comments

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