Construction activity inches up in March

Total construction spending increased by 0.3 percent in March as growth in manufacturing and education pulled up nonresidential construction spending for the month, according to an analysis of new federal data by the Associated General Contractors of America (AGC), Arlington, Virginia.

Association officials say the increases in construction demand occurred during a time when most firms were struggling to find workers to hire.

“The manufacturing construction boom is really helping construction weather the softening residential and other nonresidential markets,” AGC CEO Stephen E. Sandherr says. “But, even as overall demand continues to increase, most firms are having a hard time finding enough workers to keep pace with that demand.”

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Construction spending, not adjusted for inflation, totaled $1.8 trillion. Spending on private residential construction decreased for the 10th consecutive month in March, falling by 0.2 percent. Spending on private nonresidential construction increased by one percent in March, while public construction investment rose by 0.2 percent.

While residential construction has been flagging for nearly a year, Washington-based Associated Builders & Contractors Chief Economist Anirban Basu says nonresidential construction has headed in the opposite direction.

“Nonresidential construction spending increased for the 10th time in the past 11 months,” he says. “As has been the case for the past several months, though, the expansion in nonresidential investment is attributable to manufacturing. Were it not for a 4.6-percent increase in manufacturing-related spending, the nonresidential category would have been flat in March. Because this data is not adjusted for inflation, real nonresidential construction spending excluding manufacturing actually contracted in March.”

Spending varied among large, private nonresidential segments, says the AGC. Commercial construction—comprising warehouse, retail and farm construction—decreased 0.8 percent for the month. Power construction dipped 0.3 percent while spending on private office construction, including data centers, rose 0.3 percent compared to February.

The largest public categories were mixed, as well. The biggest—highway and street construction—declined 0.1 percent for the month, while education construction grew 0.7 percent.

Public spending on transportation projects fell 1.6 percent compared to February. Residential spending shrank because of a 0.8-percent contraction in March of single-family homebuilding. That outweighed an increase of 0.4 percent in multifamily construction for the same time frame.

AGC officials attribute the lackluster infrastructure spending to the fact that many now-funded projects are waiting for construction permits for the activity to proceed. They have urged Congress to enact bipartisan permitting reforms to streamline bureaucratic reviews and curtail frivolous lawsuits aiming to delay or cancel projects. They also continued to urge federal officials to boost funding for construction training and education programs.

“The administration is beginning to realize that the permitting problems we have long warned about are real and holding up many of the projects they are eager to get started,” Sandherr said. “Streamlining the permitting process and investing in workforce development will open the spigot on projects and rebuild the talent pipeline for the workers to build that infrastructure.”

With interest rate hikes starting to finally affect the economy, particularly in residential housing, it’s possible March’s lackluster construction growth is a sign of things to come, barring the influx of cash the industry has been hoping for from the IRA. Still, Basu says contractors are still optimistic.

“Contractors remain optimistic about their sales and profit margins over the next six months, according to ABC’s Construction Confidence Index,” Basu says. “Given the surprising resilience of construction activity in the face of ongoing interest rate increases and pervasive fears of recession, this confidence has proved justified. Spending has increased over the past year in every nonresidential subsector except for the power category, and multifamily construction is up 23.0 percent over the past year. The only construction category that is meaningfully affected by interest rate increases is single-family construction; spending is down 22.9 percent since March 2022.”