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Construction spending slips in July as sharp downturn in homebuilding outweighs advances in private nonresidential and public projects

by From Staff Reports | September 5, 2022 at 4:00 a.m.

Total construction spending decreased by 0.4 percent in July as spending on new houses and apartments tumbled, overshadowing a pickup in private nonresidential and public construction, according to an analysis the Associated General Contractors of America released today of federal spending data. Association officials said their newly released survey, conducted with Autodesk, showed labor shortages and supply chain problems are limiting their ability to complete projects, likely undermining total construction spending levels.

"There were gains for the month for nearly every private nonresidential category, along with a jump in highway and transportation work," said Ken Simonson, the association's chief economist.

"But our survey found every type of contractor is facing challenges in finding enough qualified workers to meet the demand that is probably limiting total construction activity."

Construction spending, not adjusted for inflation, totaled $1.78 trillion at a seasonally adjusted annual rate in July, 0.4 percent below the upwardly revised June rate but 8.5 percent higher than in July 2021. Private nonresidential construction spending rose for the third month in a row, increasing 0.4 percent from June.

Public construction spending climbed 1.5 percent from June.

However, these increases were negated by a 1.5 decline in private residential spending.

That segment was dragged down by a 4.0 percent slide in new single-family spending and a dip of 0.6 percent in multifamily spending.

Ten of the 11 private nonresidential categories in the government's release had at least minor upturns in July, Simonson noted. The largest private segment, commercial construction--warehouse, retail, and farm projects--increased 0.7 percent. Power construction, including spending on oil and gas projects, rose marginally.

Manufacturing construction added 0.6 percent. Office construction spending, including data centers, climbed 0.6 percent.

The largest public category, highway and street construction, leaped 4.3 percent for the month. Other major segments were mixed: spending on education structures inched down 0.1 percent, while outlays for transportation facilities rose 1.4 percent.

The association's survey found contractors broadly optimistic about demand for projects, Simonson said. Seventy-one percent of the firms expect to add employees in the next 12 months. But shortages of workers had caused projects to be delayed for 66 percent of the firms, and 82 percent had experienced delays due to shortages or longer lead times for acquiring materials.

Association officials said that labor shortages and supply chain problems are undermining total construction activity. These urged public leaders to boost funding for construction-focused education and training programs. These also called for immigration reform to allow more people with construction skills to lawfully enter the country.

"It is hard to build without builders," said Simonson. "Getting more people exposed to construction is the surest way to expand the industry's workforce and put more people into high-paying construction careers."

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