US Building Spending Lifted Modestly by Tempered April Residence-Constructing Development

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Data: US Department of Commerce; Graphic: ForConstructionPros.com

The Commerce Department said Tuesday that the seasonally adjusted annual rate of all construction erected in April rose only 0.2%, after growing 1.0% in March. Reuters reports that they interviewed economists had forecast an increase in construction spending in April of 0.5%.

But actual construction spending, an economic item that typically accounts for around 4% of gross domestic product, has increased 5.8% since the start of the year.

Slowing down of living remains the bright spot

The majority of the modest monthly growth in total construction again came from the housing sector.Data: US Department of Commerce; Graphic: ForConstructionPros.com

Housing spending rose 1.0% for the month after rising 2.6% in March. Spending on single-family projects rose 1.3% as home builders continued to push to cope with the recent surge in home purchases, which has pushed the stocks of completed homes to all-time lows. Single-family home construction spending is another segment whose April momentum failed to match the March momentum when spending rose 2.3%. However, comparing spending since the beginning of the year is encouraging, as housing construction is more than 30% above the first four months of 2020.

Spending on multi-family projects rose by 1.9%. A sharp rise in rental activity in numerous markets has prompted developers to press ahead with housing projects that have been put on hold. Home improvement spending rose 0.3% and would likely have increased even more if homeowners had been able to find contractors to do the work.

Non-residential building isn’t all that bad

Spending on non-residential buildings fell by 0.5%, marking the fifth consecutive month of decline in the category. One of the most damaging declines was a 1.5% decline in spending on energy construction – currently the largest non-residential segment – which has declined by 5.6% so far this year. Another of the Big 6 non-residential categories, educational buildings, lost 0.6% and has declined by 5.7% over the year to date.

Office and retail spending improved during the month, while housing spending was flat. That’s a relative improvement in those sectors, and Mark Vitner, Senior Economist at Wells Fargo Securities, puts it: “The latest sign of construction bouncing back as consumers re-enter the economy and corporations consolidate plans. getting their employees back to work. “

In nine out of 16 sub-categories for non-residential buildings, spending decreased on a monthly basis. Both private and public construction spending on non-residential buildings fell by 0.5% over the month.

“The fact that construction spending on non-residential buildings continues to decline is no surprise,” said Anirban Basu, chief economist at Associated Builders and Contractors. “Many factors are at work, including the historic lag between a broader economic recovery and the onset of a sustained recovery in non-residential construction. In other words, the level of spending on non-residential buildings reflects what the overall economy was like about a year ago. A year ago the economy was in dire straits.

“There’s more,” said Basu. “It is conventional wisdom that many of the projects that were postponed in the early stages of the pandemic are being brought back to life. For this reason many contractors have reported rising backlogs and confidence in the half-year outlook for sales, headcount and profit.

“But just when it seemed safe to get back in the water, new challenges arose. These include scarcity of raw materials, sharply rising material prices and persistent problems in securing skilled workers. All of this has helped stifle the current recovery in non-residential construction by inducing certain project owners to further postpone their projects in hopes of ultimately getting cheaper deals. “

Material prices set records

Activity continues to improve, but according to April’s Producer Price Index (PPI), prices for building materials and components rose 12.9% year over year. The sharp rise in timber prices has received the most attention, however the prices of most basic building materials, in particular, are rising steel, Copper and plastic products. Additionally, the cost of everything from HVAC systems, appliances, lighting fixtures, engineering to freight is similarly higher.

Longer lead times and soaring material prices will be a major obstacle for the future. Nevertheless, there are signs that construction activity will continue to improve. Entire building Permits (both single-family and multi-family homes) hit a pace of 1.76 million units in April. Total permits have increased over 32% since the start of the year, which means housing construction should continue to remain robust.

The outlook for non-residential construction continues to improve. The Architecture Billings Index (ABI), which tracks billing, inquiries and planning contracts from architecture firms, rose to 57.9 in April, its highest level since 2007. The recent upswing in the ABI should improve non-residential construction significantly over the course of the next few Years. About 37% of companies (the largest proportion) said rising material costs would become a serious problem, while another 35% of companies said it was a moderate problem.April 2021 History of Construction SpendingData: US Department of Commerce; Graphic: ForConstructionPros.com