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Nonresidential Construction Outlays Drop In March For Fourth-Straight Month As Weak Demand, Supply-chain Woes Make Further Declines Likely

May 3, 2021

Construction Officials Say New Infrastructure Investments, Tariff Relief for Key Construction Materials are Needed to Help Contractors Cope with Continued Economic Impacts of the Pandemic

Nonresidential construction spending fell to a two-year low in March as contractors struggled with slumping demand for most project types and growing shortages of materials, transport, and workers, according to an analysis of new federal construction spending data by the Associated General Contractors of America. Officials with the association said project cancellations and widespread supply chain problems are hindering the industry’s recovery.

“Every major category of private nonresidential projects has declined over the past year, while public construction spending is also deteriorating rapidly,” said Ken Simonson, the association’s chief economist. “Unfortunately, the widespread and growing backlogs for key materials and shortages of trucking and rail services to deliver goods mean that even projects that are underway are likely to take longer to complete.”

Construction spending in March totaled $1.51 trillion at a seasonally adjusted annual rate, an increase of 0.8 percent from the pace in February and 5.3 percent higher than in March 2020. However, the year-over-year gain was limited to residential construction, Simonson noted. That segment jumped 1.7 percent for the month and 23 percent year-over-year. Meanwhile, combined private and public nonresidential spending declined 1.1 percent from February—the fourth consecutive monthly decrease—and 7.4 percent over 12 months.

Private nonresidential construction spending fell 0.9 percent from February to March and 9.1 percent since March 2020, with year-over-year decreases in all 11 subsegments. The largest private nonresidential category, power construction, retreated 8.3 percent year-over-year and 0.4 percent from February to March. Among the other large private nonresidential project types, commercial construction—comprising retail, warehouse and farm structures—slumped 8.8 percent year-over-year and 0.5 percent for the month. Manufacturing construction tumbled 7.8 percent from a year earlier and 1.3 percent in March. Office construction decreased 4.2 percent year-over-year and 0.4 percent in March.

Public construction spending slumped 4.6 percent year-over-year and 1.5 percent for the month. Among the largest segments, highway and street construction declined 10.9 percent from a year earlier and 2.2 percent for the month, while educational construction decreased 4.0 percent year-over-year and 2.0 percent in March. Spending on transportation facilities declined 0.9 percent over 12 months but rose 1.8 percent in March.

Association officials urged Congress and the Biden administration to work together to increase investments in infrastructure. And they continued to call on the President to take steps to address rapidly rising materials prices, including by ending tariffs on key construction materials like steel and lumber. They cautioned that without the new investments and supply chain relief, the industry would have a hard time recovering.

“Federal officials are pushing for an economic recovery while at the same time hanging on to dated policies, like tariffs, that are holding growth back,” said Stephen E. Sandherr, the association’s chief executive officer. “Boosting infrastructure investments and tackling supply chain problems will go a long way in unleashing demand for new construction workers.”

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