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02-04-20 | Economic News

Construction Spending Slightly Lower than Last Year

Off Only 0.3%

A strong monthly upswing in residential spending was not enough to offset a drop in the nonresidential sector.

After five months of gains, construction outlays slipped 0.2% during December, which dropped the year's total to 0.3% below last year's amount. But the residential sector grew 1.4% in December, and is up 15.0% on a three-month annualized basis, with nearly all of the gain credited to spending on single-family residences, aided by a monthly increase of 2.7%.

Conversely, the multifamily sector dropped 1.8% for the month, which marks its fifth consecutive decline.

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The Wells Fargo Economics Group stated "While we expect multifamily construction to remain lofty, activity has likely peaked for the cycle as more favorable buying conditions make home buying relatively more attractive. Apartment development is also shifting more toward the suburbs, where construction costs tend to be lower."

Nonresidential construction spending dipped 1.2% in December led by manufacturing (-4.3%), commercial (-2.9%), educational (-2.0%) and office (-1.0%).

In good news, revisions to recent months' data now show total expenditures rising at a 1.8% annual rate over the past three months. And the Architecture Billings Index rose to 52.5 in December.

"Given the forward-looking nature of the ABI, this paints a slightly more positive picture for nonresidential spending in 2020," a statement from the group announced.

Public construction spending rose 7.1% year-over-year, which is the strongest performance of the sector since 2007. Breaking that down, outlays by federal entities rose 12.4% while state and local governments spent 6.7% more than last year. Combined, this growth was fueled by power (+17.2%), conservation and development (+12.2%), transportation (+9.7%), highway and street projects (+8.8%), sewage and waste disposal (+8.5%) and water supply (+7.2%).

Concluding their evaluation, the Wells Fargo Economics group reported, "overall, spending continues to be somewhat subdued relative to recent history, as an ongoing shortfall of qualified workers has pushed labor costs steadily higher and delayed or sidelined many projects. The fundamentals appear to be improving, however, and there are a number of encouraging developments pointing to better days ahead for construction. While finding labor remains a challenge, lower builder material prices and lower interest rates should produce a friendlier environment for construction in 2020."

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