Construction spending in June came in at a seasonally adjusted annual rate of $1.36 trillion. That was slightly below May’s revised figures and captured a fourth straight month of declines. May spending was revised up by $8 billion. June spending was 6% below February’s pre-COVID-19 peak of $1.4 trillion. Both private and public construction declined on a monthly basis. However, public construction rose 6% from a year ago with most of that concentrated on safety, education and highway and street construction. Annual gains in total construction spending have been slipping.
Private construction spending declined during June, driven by a 1.5% drop in residential construction spending; spending on single-family homes dropped while multifamily increased. Rock-bottom interest rates and growing demand for housing, especially by younger cohorts, will boost the need for more homes; current supply is short, causing bidding wars in many hot markets.
Nonresidential construction was almost flat from last month, but down 3.2% from a year ago. The private nonresidential construction industry is undergoing significant shifts due to the pandemic; everything from offices, hotels and retail spaces to industrial and institutional structures have been affected. A report by the American Institute of Architects (AIA) forecasts that spending on nonresidential construction will decline this year into 2021, a first in almost a decade. Commercial construction, such as offices and retail, will lead the decline.
Public spending on construction, mostly by state and local governments, declined slightly from May. State and local government coffers were drained in responding to COVID. Federal support is still pending but the new fiscal year began for many states and municipalities on July 1. The biggest components of state and local construction: education, transportation and highways and streets will experience significant losses if federal support is not provided. Employment by state and local governments has accounted for up to 13% of all jobs in the U.S.
Separately, hurricane season has brought a new storm to the East coast, with Tropical Storm Isaias nearing Florida and the Carolinas. Historically, the response after natural disasters was to spend money on rebuilding damaged communities. In recent years, rebuilding has been slow for communities in Puerto Rico, Texas, the Carolinas and other coastal areas hit by hurricanes.
The pandemic has practically monopolized disaster assistance, so storm damage may seem significantly worse. State and local governments have gaping holes in their budgets since COVID-19; they will be left to make painful trade-off decisions if federal support does not come through.
The construction industry is poised to fare better than service-based industries during this COVID-19 recession; construction could actually add to employment over the summer. However, spikes in COVID cases and deaths throughout the country, along with significant delays in federal support, create significant headwinds for the economy in the second half.
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