Construction spending unchanged in May as private sector slows

Dive Brief:

U.S. construction spending in May came in at a seasonally adjusted annual rate of $1.23 trillion, remaining unchanged from April's upward-revised rate, the Commerce Department reported Monday.
Private nonresidential spending fell 0.7% in May, while private residential spending slipped 0.6%, with both new single-family (-0.3%) and multifamily housing (-3.3%) taking hits for the month. Outlays for public construction, however, rose 2.1%.
Despite May's overall lackluster showing in overall starts growth, construction spending was up on both a year-over-year (4.5%) and year-to-date (6.1%) basis.

Dive Insight:

This latest report is another example of how the private construction industry's recovery after the Great Recession has followed a seesaw pattern from month to month. According to Markets Insider, May's drop came as a surprise to analysts who expected an uptick in spending of about 0.2%.

Anirban Basu, chief economist for the Associated Builders and Contractors, said in a press release that the level of construction spending — lower than expected — is out of alignment with other "key trends." For example, he said private sector construction backlog is solid and still tracking upward, construction employment is down, and contractors are reporting that they're busy — all factors that should have pushed a boost in spending.

Another shift in the May spending figures, when compared to previous quarters, is that of public-driven spending versus private, as the public sector had been following a downward trajectory earlier in the year. Basu said all of these factors indicate that owners have adopted a "wait and see" posture instead of opening their pockets.

One private nonresidential category that saw both month-to-month (0.8%) and year-over-year (15.9%) increases is the office sector. Last month, real estate company JLL said in its first-quarter report that the office segment would continue to grow, along with lease rates, throughout 2017, even though vacancy rates in some markets indicate a slight oversupply.