Manufacturing continues to drive construction spending

Dive Brief:

National nonresidential construction spending ticked up 0.4% in August to a seasonally adjusted annualized basis of $1.09 trillion, according to a new Associated Builders and Contractors analysis.
The jump marks the third consecutive month of modest growth, with manufacturing construction remaining the driving force in the industry, according to the report.
“Aggregate nonresidential construction spending expanded at a respectable rate in August,” said Anirban Basu, ABC chief economist. “But manufacturing-related and public sector projects accounted for more than 100% of the monthly increase. Privately financed commercial and educational-related construction spending declined by almost 1% at least partially due to elevated borrowing costs.”

Dive Insight:

Spending levels remained mostly positive among large nonresidential segments, according to the Associated General Contractors of America construction spending report.

Manufacturing-related spending continues to lead the way, posting a 1.2% uptick in August, according to the report. Spending on power, highway and street, office and healthcare construction also each jumped 0.4% in August, according to the report.

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

Commercial construction, which includes warehouse and retail projects, fell 0.9% in August compared to a month ago, noted the AGC report. That slowdown largely stems from elevated interest rates, said Basu.

Nonetheless, contractors remain relatively upbeat despite high interest rates and ongoing weakness in certain segments like office and retail, said Basu. But even with lingering high materials costs and ongoing labor shortages, Basu added many contractors still expect their profit margins to increase over the next six months.

Spending increased on a monthly basis in 12 of the 16 nonresidential subcategories, led by the 1.2% jump in manufacturing projects, according to ABC. Private nonresidential spending increased by 0.3%, while public nonresidential spending moved up 0.6%.