ABC: Nonresidential construction spending dips in February 2022
Originally posted on pitandquarry.com | by By Jack Kopanski
National nonresidential construction spending was down 0.1 percent in February, according to an Associated Builders & Contractors (ABC) analysis of U.S. Census Bureau data.
On a seasonally adjusted annualized basis, nonresidential spending totaled $844.5 billion for the month.
Spending was down on a monthly basis in 10 of the 16 nonresidential subcategories. Private nonresidential spending was up by 0.2 percent, while public nonresidential construction spending was down 0.5 percent in February.
“Nonresidential spending decreased in February despite inflationary pressures that should have driven it higher,” says ABC chief economist Anirban Basu. “True, nonresidential spending is up 6.2 percent year over year, but given the significance of construction materials inflation, spending has almost certainly declined in real terms.
“Moreover, the Russia-Ukraine war has spawned further materials price increases, which in turn raises the risk that project owners will decide to postpone or cancel projects,” Basu adds. “ABC’s Construction Confidence Index indicates that a growing number of contractors expect to trim their margins during the year ahead in order to induce purchasers to continue to move forward. The spread of an omicron subvariant in China has started to interfere with production there, which translates to additional supply chain disruptions.”
Basu adds that the risk of a recession is rising and while he says there is evidence of ongoing momentum, credit conditions will become more challenging this year.
“The question is whether the Federal Reserve can slow economic growth in order to counter inflation without driving the economy into recession,” Basu says. “The recent inversion of the yield curve is viewed by many economists as a leading indicator of recession.
“Since the early 1980s, most rate tightening cycles have ended in recession,” Basu adds. “For contractors that largely work on private construction projects, this suggests risk of weakening backlog at some point later this year or in 2023. For those largely focused on public work, the economics are more favorable, since federal infrastructure outlays will be elevated for approximately the next five years.”
