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Construction spending levels enter fourth quarter at seven-year high

Source: Associated General Contractors of America, Washington, D.C.

Construction spending in September reached a level last seen in March 2008 and climbed at the fastest rate since early 2006, according to an AGC analysis, which also found that nonresidential project outlays declined by 0.1 percent between August and September as growing workforce shortages likely impacted the volume of work contractors were able to perform for the month.

“Overall demand for construction continues to grow at a very robust rate,” says AGC Chief Economist Ken Simonson. Construction spending in September totaled $1.094 trillion at a seasonally adjusted annual rate, 0.6 percent higher than the August total and 14.1 percent higher than in September 2014, he adds. In addition to construction spending reaching a seven-year high, the year-over-year growth rate was the strongest since January 2006.

Private residential spending increased 1.9 percent for the month and 17.1 percent over 12 months. Simonson finds that demand for multifamily residential construction grew at a particularly robust rate: 4.9 percent for the month and 26.7 percent year-over-year. Public construction spending rose 0.7 percent from a month before and 9.4 percent from 12 months earlier. Notably, demand for educational facilities grew by 2.4 percent for the month and 10.5 percent year-over-year.

Private nonresidential spending fell by 0.7 percent from August even as it remains 14.9 percent higher than a year earlier. While spending on sectors such as lodging, manufacturing and offices experienced significant year-over-year growth, Simonson notes, most categories saw a decline in spending between August and September as firms struggled to replace retiring workers amid growing labor market tightness. Bureau of Labor Statistics data indicate 479,000 unemployed construction workers in September, the smallest total for the month in 15 years.

“Demand may be starting to outstrip the industry’s capacity given the severe and growing shortages of available, qualified workers,” notes AGC CEO Stephen Sandherr, who urges elected and appointed officials to act on measures outlined in the association’s Workforce Development Plan designed to make it easier to prepare, recruit and train new workers.