Nonresidential Construction Lags as Pandemic Lingers

WASHINGTON (May 3, 2021) — The United States Department of Commerce revealed that construction spending gained just 0.2% in March, despite predictions from the industry expecting a 1.9% increase. Spending is still up 5.3% over March 2020. Private construction rose 0.7% in March as demand for housing continues. Residential projects increased 1.7% in March, the largest of any industry sector.

An Associated Builders and Contractors (ABC) analysis of the data suggests that spending was down on a monthly basis in 11 of the 16 nonresidential subcategories.

“While the longer-term outlook for nonresidential construction is superb, the pandemic is lingering, creating much damage to commercial real estate fundamentals,” said ABC Chief Economist Anirban Basu. “The lodging, office and commercial segments experienced declines in spending in March. Office vacancy rates are elevated in many markets, and the industry experienced negative net absorption. The trials and tribulations of hotel operators, retailers and restauranteurs are also well known. Private nonresidential construction spending is down more than 9% from March 2020.

“Public construction spending was weak in March and is down more than 5% on a year-over-year basis,” said Basu. “While large-scale federal infrastructure outlays are likely in the future, that money has yet to arrive. State and local government finances have generally held up far better than many had predicted earlier in the COVID-19 crisis, but many governments have had to spend significant operational sums to countervail the public health crisis and therefore had to redirect money away from infrastructure.