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Sources: Associated Builders & Contractors, Washington, D.C.; CP staff

Nonresidential construction fell for a second consecutive month. An ABC analysis of U.S. Census Bureau data shows seasonally adjusted, annualized spending of $687 billion in August, 1.1 percent and 1.3 percent lower than prior month and August 2015 levels, respectively. Four of the five largest nonresidential subsectors—power, highway and street, commercial and manufacturing—combined to fall 2.2 percent on a monthly basis in August 2016.

“Nonresidential construction [stakeholders] have become accustomed to seeing weak spending data,” says ABC Chief Economist Anirban Basu. “While previous weak spending reports can almost completely be explained by diminished public construction spending,” he adds, August Census data reveals “emerging weakness in private spending [with] some noteworthy exceptions. Office-related construction spending continued to surge higher, rising 2 percent for the month and up a whopping 24 percent on a year-over-year basis. Construction spending related to lodging rose 1.2 percent on a monthly basis and is nearly 16 percent higher than the year-ago level. Foreign investment in U.S. commercial real estate heavily influences these two segments, which has helped produce both higher asset prices and more construction.”

“Given the passage of a federal highway bill last year, one might have expected spending growth in the highway/street and transportation categories,” Basu explains. “Those expectations have been unmet thus far.” Transportation-related construction spending dipped by more than 6 percent in August and is down more than 11 percent on a year-over-year basis. Highway and street spending is down by more than 8 percent on a year-ago basis, and was nearly 3 percent lower for August.

“There are a number of theories at work, including the 2016 election cycle, which has led to some decision-makers putting projects on hold. Government spending generally remains weak, and there are some indications that private lending standards are tightening due to a combination of growing concern among financial industry regulators and bankers that real estate bubbles are forming again in certain communities and segments,” Basu concludes.