Construction Spending Declines Due to Steep Drop in Homebuilding

A sharp decline in spending on new houses in August led to a 0.7% decline in total construction spending, according to an analysis by the Associated General Contractors of America (AGC). Association officials say that the decline in new home spending is a result of rising interest rates.

AGC officials did say that new federal funding for infrastructure, semiconductor plants and green energy facilities will lessen the blow of increasing interest rates in the coming months.

“The construction market is in a transition that is likely to accelerate in the months ahead,” says Ken Simonson, AGC’s chief economist. “Steeply rising interest rates have crushed demand for single-family housing and threaten developer-financed projects, while newly enacted federal legislation will soon boost investment in power, manufacturing and infrastructure construction. But a pickup in these segments will require improvements in the timely approval of projects and adequate supplies of workers and materials.”

Construction spending, not adjusted for inflation, totaled $1.78 trillion at a seasonally adjusted annual rate in August, 0.7% below the upwardly revised July rate. Spending on new single-family homes declined for the fourth month in a row, falling by 2.9% from July. Spending on other residential segments rose by 0.4% for multifamily construction and 1.0% for improvements to owner-occupied housing.

Private nonresidential spending ticked down 0.1% in August. Spending on commercial construction — warehouse, retail and farm projects — was flat. Manufacturing construction declined by 0.5% in August but jumped 21.6% over 12 months. Spending on office construction, which includes data centers, climbed 0.3% for the month.

Association officials say the benefits of recent new federal investments in the construction of infrastructure, manufacturing and energy production have been delayed by some of the regulatory requirements associated with the measures. Officials also warned that workforce shortages and ongoing supply chain problems could undermine the sector’s ability to deliver federally funded projects and help rebuild in parts of the Southeast after Hurricane Ian.

“Federal officials can shore up slowing demand for construction by moving more quickly to fund new projects,” says Stephen E. Sandherr, AGC’s CEO. “Meanwhile, boosting investments in construction training and education programs will help ensure there are enough workers to rebuild after natural disasters and modernize our infrastructure and energy and manufacturing sectors.”

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