Construction spending slips due to weather, interest rates

Dive Brief:

Nonresidential construction spending dropped 1% in February to a seasonally adjusted annual rate of $1.179 trillion, according to Associated Builders and Contractors’ analysis of U.S. Census Bureau data.
That decrease in February marks the second month in a row of construction spending contraction, following a 19-month streak of construction spending growth, according to the report.
“The optimist will likely shrug off both the January and February nonresidential construction spending declines as merely reflecting winter weather,” said Anirban Basu, ABC chief economist. “The pessimist will proclaim this release a wake-up call to contractors and an indication that higher interest rates have finally begun to make their mark.”

Dive Insight:

Fifteen of the 16 nonresidential subcategories posted a monthly decline, according to the data.

For example, healthcare spending dropped 2.2%, commercial spending decreased 1.9% and water supply spending ticked down 1.8%. Meanwhile, public nonresidential construction spending tumbled 1.2%, while private nonresidential spending dropped another 0.9% in February.

However, all categories posted year-over-year spending growth, according to an analysis from the Associated General Contractors of America.

That suggests “the current downturns may reflect short-term challenges such as severe weather, not fading demand,” said Ken Simonson, AGC chief economist.

For example, construction spending increased more than 10% in 10 categories over the past 12 months, including a 36% uptick in public safety spending and 32% in manufacturing construction, said Basu.

Spending on private nonresidential construction jumped 12.6% compared to February 2023, while public construction spending posted a 16.8% growth from a year earlier, according to the data.

ABC’s Construction Confidence Index, which measures contractors outlooks over the next six months, also remains positive. That means the current dip in spending could be temporary, Basu said.

“As always, interpreting the data is complicated,” said Basu. “[But] contractors remain confident with respect to their sales over the next six months, signaling that the data could improve with the weather.”