Construction Spending Rises In January As Private Nonresidential Sector Stages Rare Gain, But Rising Materials Costs Make Further Losses Likely

Private Nonresidential Market Shrinks 10 Percent Since January 2020 with Declines in All 11 Segments;

Growing Cancellations, Proposed Labor Law Change Threaten to Harm Employers and Workers Alike

Construction spending rallied in January as private nonresidential construction increased for the first time in seven months, according to an analysis of new federal construction spending data by the Associated General Contractors of America. Association officials said that nonresidential construction spending remains below pre-pandemic levels and that rising materials prices and proposed labor law changes threaten the sector’s recovery.

“Despite a modest upturn in January, spending on private nonresidential construction remained at the second-lowest level in more than three years and was 10 percent below the January 2020 spending rate,” said Ken Simonson, the association’s chief economist. “All 11 of the private nonresidential categories in the government report were down, compared to a year earlier.”

Construction spending in January totaled $1.52 trillion at a seasonally adjusted annual rate, an increase of 1.7 percent from the pace in December and 5.8 percent higher than in January 2020. Residential construction jumped 2.5 percent for the month and 21 percent year-over-year. Meanwhile, combined private and public nonresidential spending climbed 0.9 percent from December but remained 5.0 percent below the year-ago level.

Private nonresidential construction spending rose 0.4 percent from December to January, although declines continued for the three largest components. The largest private nonresidential segment, power construction, fell 10.0 percent year-over-year and 0.8 percent from December to January. Among the other large private nonresidential project types, commercial construction—comprising retail, warehouse and farm structures—slumped 8.3 percent year-over-year and 1.8 percent for the month. Office construction decreased 4.4 percent year-over-year and 0.2 percent in January. Manufacturing construction tumbled 14.7 percent from a year earlier despite a 4.9 percent pickup in January.

Public construction spending increased 2.9 percent year-over-year and 1.7 percent for the month. Results were mixed among the largest segments. Highway and street construction rose 6.5 percent from a year earlier and 5.8 percent for the month, possibly reflecting unseasonably mild weather conditions in January 2021 compared to December and January 2020. Educational construction increased 0.9 percent year-over-year but dipped 0.1 percent in January. Spending on transportation facilities declined 0.6 percent for the year and 1.0 percent in January.

Private residential construction spending increased for the eighth-straight month, jumping 21 percent year-over-year percent and 2.5 percent in January. Single-family homebuilding leaped 24.2 percent compared to January 2020 and 3.0 percent for the month. Multifamily construction spending climbed 16.9 percent for the year and 0.7 percent for the month.

Association officials said that many construction firms report they are being squeezed by rising materials prices, particularly for lumber and steel, yet are having a hard time increasing what they charge to complete projects. They urged the Biden administration to explore ways to boost domestic supply and eliminate trade barriers for those key materials. They also cautioned that the proposed PRO Act and its significant changes to current labor laws could undermine labor harmony at a time when the industry is struggling to rebound.

“Contractors are getting caught between rising materials prices and stagnant bid levels,” said Stephen E. Sandherr, the association’s chief executive officer. “Add to that the possible threat of a new era of labor unrest, and many contractors are worried that the recovery will end before it really starts.”

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