Nonresidential Spending Retains Momentum in October

January 2016

Nonresidential construction spending expanded in October for the third consecutive month (September’s estimate was revised higher than August’s) according to analysis of U.S. Census Bureau data released by Associated Builders and Contractors Dec. 1, 2015. Nonresidential construction spending totaled $701.8 billion in October on a seasonally adjusted annualized rate, a 1 percent increase on a monthly basis and an 11 percent increase on a yearly basis.

Private sector nonresidential construction spending added 0.6 percent for the month, reaching a total of $403.4 billion. Nonresidential spending in the public sector gained 1.4 percent from September, totaling $298.4 billion.

“The data tell a simple story: October was a strong month for nonresidential construction spending,” said ABC Chief Economist Anirban Basu. “Interestingly, in October, publicly financed construction spending expanded more rapidly than private construction spending, representing a stark reversal from prior years when construction’s recovery was motivated almost exclusively by private spending growth. There is reason to believe that public finances will continue to improve, which should help bolster nonresidential construction’s fortunes into 2016.

“One could question, of course, what factors are driving positive construction spending outcomes and whether or not those factors will remain in place,” said Basu. “Those are more complex questions, but even they can be answered with some degree of satisfaction. Construction spending continues to be supported by ongoing improvement in state and local government finances, inexpensive money, availability of both debt and equity to finance projects, growing demand for office and other forms of space, and added levels of confidence among key economic actors.

Spending increased in 10 of 16 nonresidential construction sectors on a monthly basis in October:
•    Public safety-related spending expanded by 15.7 percent for the month but fell by 2.2 percent from October 2014.
•    Conservation and development-related spending gained 12.2 percent on a monthly basis and 9.6 percent on a yearly basis.
•    Spending in the communication category increased by 7.3 percent since September 2015 and 19.2 percent since October 2014.
•    Manufacturing-related spending expanded by 3 percent month-over-month and 40.5 percent year-over-year.
•    Spending the water supply category grew by 2.4 percent for the month and 4.6 percent since the same time last year.
•    Health care-related spending grew 1.3 percent from September and 6.1 percent from October of last year.
•    Highway and street-related spending expanded by 1.1 percent on a monthly basis and 6 percent on a yearly basis.
•    Transportation-related spending grew 0.9 percent month-over-month and 4.2 percent year-over-year.
•    Office-related spending inched 0.5 percent higher on a monthly basis and 15.3 percent higher on a yearly basis.
•    Spending in the educational category expanded by 0.4 percent from September 2015 and 9.4 percent from October 2014.

Spending in six of the nonresidential construction subsectors fell in October on a monthly basis:
•    Spending in the amusement and recreation category fell by 0.3 percent for the month but increased by 24.1 percent on a yearly basis.
•    Lodging-related spending declined 0.4 percent on a monthly basis but gained 29.6 percent year-over-year.
•    Commercial-related spending dipped 0.5 percent from September 2015 and 2.2 percent from October 2014
•    Spending in the sewage and waste disposal category fell 0.7 percent on a monthly basis but expanded by 6.2 percent on a yearly basis.
•    Power-related spending fell 1.9 percent for the month but is up 5.1 percent year-over-year
•    Religious-related spending dipped 3.4 percent on a month-ago basis but is up 10.3 from the same time last year.