Nonresidential Construction Down 1% in March; Recession May be Coming

May 2, 2022 - National nonresidential construction spending was down 0.8% in March, according to an Associated Builders and Contractors (ABC) analysis of data published by the U.S. Census Bureau.

On a seasonally adjusted annualized basis, nonresidential spending totaled $839.2 billion for the month.

For the month, spending was down in 11 of 16 nonresidential subcategories. Private nonresidential spending was down 1.2%, while public nonresidential construction spending was down 0.3% in March.

Year over year, nonresidential construction spending is up 5.6%, led by 31.9% growth in construction related to manufacturing.

“March’s construction spending numbers aren’t adjusted for inflation and are actually worse than they look,” said ABC Chief Economist Anirban Basu. “While overall construction spending rose 0.1% in March, largely because of the strength in multifamily residential construction, construction spending was down in real terms. Nonresidential construction performance declined because of weakness in segments like commercial (-1.9%) and amusement/recreation (-2.1%).”

Basu added, “Even though nonresidential construction spending levels are significantly short of what they were pre-pandemic, many contractors indicate that they are operating at capacity, according to ABC’s Construction Backlog Indicator.”

Basu then explained, “This speaks to how challenging the economic environment is becoming, with contractors wrestling with workforce skills shortages and sky-high materials prices. The elevated cost of construction service delivery helps explain why more projects are not moving forward as project owners are forced to wait.”

He noted that the Federal Reserve’s stepped-up efforts to combat inflation will eventually translate into better pricing for key construction inputs, but that those efforts will also soften the economy.

“Many economists believe that a recession in America over the next 12 to 18 months has become virtually inevitable,” he said. “Thus, even as delivering construction services becomes more affordable, demand for construction services, particularly private construction, may begin to fade.”