Spending Down Again in December

Nonresidential construction spending dipped for the second month in a row in December, according to Associated Builders and Contractors (ABC) analysis of U.S. Census Bureau data.

The month saw a 0.4-percent decline, as spending totaled $681.2 billion on a seasonally adjusted, annualized basis. November’s nonresidential construction spending estimate was revised lower by 0.6 percent to $683.7 billion.

Twelve of 16 nonresidential subsectors experienced spending decreases on a monthly basis. Private nonresidential spending fell 2.1 percent for the month, while public sector spending increased 2.2 percent.

“December’s estimate is a bit unnerving not only because it represents a second consecutive month of spending decline, but also because unusually warm temperatures should have helped to translate into better spending performance,” says ABC chief economist Anirban Basu. “A number of leading indicators suggest that nonresidential construction spending performance will remain choppy moving forward, both for the broader economy and the nation’s nonresidential construction segment, including the Baltic Dry Index, the Conference Board’s Index of Leading Economic Indicators and the Architecture Billings Index.”

“This is not to suggest that the nonresidential recovery will end in the near term,” he says. “Most firms continue to report healthy backlog and hiring remains aggressive, implying that many firms are staffing up in order to perform on forthcoming contractual opportunities. However, private credit is beginning to tighten and becoming more expensive. Consumer delinquencies are edging higher and corporate bond defaults have been climbing. Accordingly, many contractors may experience a slowdown in backlog accumulation in 2016, with the 2017-2018 economic outlook remaining decidedly murky.”

Communication-related spending increased 4 percent month over month and 37.2 percent year over year, while spending in the amusement and recreation category climbed 0.5 percent on a monthly basis and 9.2 percent on a year-over-year basis.

Commercial-related construction spending fell 0.6 percent for the month and 3.2 percent for the year. Educational-related construction spending fell 0.8 percent on a monthly basis, but expanded 10 percent on a yearly basis.

Transportation-related spending fell 0.8 percent month over month, but expanded 2.3 percent year over year, while lodging-related spending was down 1.3 percent for the month, but is up 29.1 percent on a year-ago basis.

Spending in the office category fell 1.8 percent from November 2015, but is up 16.6 percent from December 2014. Health care-related spending fell 3.2 percent month over month, but is up 0.4 percent year over year.

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