Broad-based construction spending up

Total construction spending increased by 0.5 percent in August, driven by increases in most large nonresidential construction segments, as well as residential projects, according to an analysis of federal spending data by the Associated General Contractors of America (AGC), Arlington, Virginia.

While growing demand for construction is welcome news, AGC officials say construction firms remain concerned about finding enough qualified workers to keep pace with demand.

“For now, all types of construction are growing,” says Ken Simonson, AGC’s chief economist. “But unless the supply of qualified workers increases, many projects are likely to be delayed.”

Construction spending, not adjusted for inflation, totaled $1.983 trillion at a seasonally adjusted annual rate in August. That figure is 0.5 percent above the July rate, which was revised higher from the earlier estimate. Spending on private residential construction increased for the fourth consecutive month in August, by 0.6 percent. Spending on private nonresidential construction increased by 0.3 percent in August, while public construction investment increased 0.6 percent.

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Spending was mostly positive among large nonresidential segments. Spending on manufacturing plants increased 1.2 percent between July and August. Spending on power, highway and street, office and health care construction each grew by 0.4 percent for the month. Educational construction was flat. In contrast, commercial construction—comprising warehouse, retail and farm construction—fell by 0.9 percent in August compared to the month prior.

Residential spending grew by 0.6 percent from July to August. Single-family homebuilding contributed the majority share of the growth, expanding by 1.7 percent for the month. New multifamily construction was up 0.6 percent compared to July.

Anirban Basu, chief economist for the Washington-based Associated Builders and Contractors, says there were more unfilled positions as of the end of August 2023 than there were a year ago. Still, he says the rate at which workers are quitting has slowed, which is a hopeful sign for contractors that may counteract the difficult hiring situation.

“Despite the year-over-year increase, the rate at which construction workers are quitting has slowed dramatically as labor constraints ease in other industries that compete for the same workers,” he says. “With a majority of contractors looking to expand their staffing levels over the next six months, according to ABC’s Construction Confidence Index, any improvements in the labor supply will help contractors keep project costs under control.” 

While increasing construction input costs may mean increased spending during the next several months, Basu says he expects a slowdown.

“This is the period during which construction activity persists despite growing weakness in the broader economy,” he says. “Based on [construction] backlog dynamics, I expect construction spending growth to begin sputtering late next year or in 2025.”

AGC officials note in a recent workforce survey that 88 percent of construction firms that are hiring are having a hard time finding enough qualified workers. They urged federal officials to allow more people with construction skills to lawfully enter the country as a short-term solution to labor shortages. And they pushed Congress and the Biden administration to boost funding for career and technical education to expose and prepare more domestic workers for high-paying careers in construction.

RELATED: AGC: Contractors eager to hire but lack qualified applicants

“We are seeing strong and growing investments in construction projects from both the private and the public sectors,” AGC CEO Stephen E. Sandherr says. “But without new investments in construction education and training, as well as programs to allow skilled construction workers into the country, those projects are going to take longer and cost more to get built.”

ABC says the administration expanded the Temporary Protected Status program to almost 500,000 Venezuelan immigrants, 50,000 or so who are reportedly employed in construction.