(10-01-21) Summary – Total construction spending was flat during August. Overall spending is up 7.0% on a year-to-date basis. Residential outlays rose 0.4%, the sixth consecutive monthly gain. The gain in the residential sector was owed almost entirely to a 2.5% rise in home improvement spending. More time being spent at home, low interest rates and rising home equity has led to a surge in repair and remodel activity. Single family and multifamily spending both declined during the month, possibly due to shortages of key raw materials. Low inventories of homes for sale and still-strong buyer demand continue bolster residential construction spending, however, which is up 25.8% year-to-date. Total nonresidential expenditures slipped 0.4% in August. Most major categories of nonresidential spending fell during the month, notably healthcare, lodging, power and commercial outlays. Building material scarcities and uncertain tenant demand, which are both knock-on effects of the pandemic, continue to weigh on nonresidential activity. Nonresidential spending is down 6.7% year-to-date as of August. There is some hope on the horizon for the nonresidential sector. The Architectural Billings Index, which leads nonresidential construction spending by about a year, rose to 55.6 during August. Public outlays rose 0.5% during the month, as education and highway & street spending registered solid gains. Residential Keeps on Rising – The divergence between residential and nonresidential construction continued in August. Overall construction spending was flat during the month, as a 1.0% decline in nonresidential spending offset a solid 0.4% gain in residential outlays. The construction industry as a whole has had to contend with a multitude of pandemic-related disruptions, such as increased safety precautions, building material cost run-ups created by global supply chain dysfunction, and acute skilled-labor shortages. The pandemic has also given rise to more fundamental changes, such as the rise of remote work and increased household space needs, which have been a boon for the residential sector. The monthly gain in residential was owed almost entirely to a 2.5% rise in home improvement spending. More time being spent at home, low interest rates, rising home equity and the dearth of homes available for sale has led to a surge in repair and remodel activity. Private single family (-0.7%) and multifamily (-0.8%) spending both dropped during the month. Despite these declines, low inventories of homes for sale and still-strong buyer demand should continue to keep single-family spending running at a strong pace in coming months. A recent up-shift in multifamily starts and permits indicates that ascending apartment rents, which have come along with resurgent leasing demand, are encouraging developers to move forward with projects. Nonresidential Still Down, but not Completely Out – The public health crisis continues to upend nonresidential construction. Total nonresidential expenditures slipped 0.4% in August, and spending is down 6.7% year-to-year, on a year-to-date basis. Most major categories of nonresidential spending fell during August. Spending on lodging (-2.8%) weakened during the month. Domestic travel continues to recover, although the rise of the Delta variant means business and international travel will likely take even longer to return. Commercial (-0.7%) spending fell, as the shift to e-commerce continues to limit new retail construction. Healthcare (-1.0%) spending declined, while manufacturing (-1.8%) and power (-1.4%) expenditures both backtracked. There were a few bright spots within the nonresidential category. Office spending rose 0.2% during the month. Spending on office projects appears to be slowly picking up, although the recent gains may be owed to renovations on existing buildings as businesses prepare for the eventual return of workers, likely not until 2022. The increase may also reflect a rise in data center construction, the details of which are not provided but are nevertheless included as part of overall office spending. Warehouse construction (0.3%) also continues to be a bright spot in the age of online shopping and businesses seeking to rebuild inventories and fortify supply chains. The Architectural Billings Index, which leads nonresidential construction spending by about a year, rose to 55.6 during August. The index has now been in expansion territory (over 50) for seven straight months, which suggests nonresidential activity should strengthen over the next few years. Project pipelines are slowly being refilled, but several obstacles are standing in the way of faster progress. For one, building material pricing and availability remains a significant impediment. On top of sky-rocketing steel prices, the cost of many materials are still rising rapidly, propelled higher by widespread supply shortages. Scarcities of skilled labor have also become a headwind for the construction industry, although some relief may be on the way as COVID risks subside and pandemic-era unemployment programs and benefit payouts come to an end.
Construction Spending (10-01-21)
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