Construction spending climbed higher in April

Summary

Construction climbs despite challenging macroeconomic backdrop

Total construction spending advanced 1.2% during April. The monthly gain translates to a 7.2% annual increase. Total outlays have now risen for three consecutive months. While the threat of a recession looms large, the construction industry appears to be enjoying more favorable supply-side conditions at present. Construction supply chains are still not functioning as they were prior to the pandemic, with truck drivers and key materials like windows and power transformers still difficult to come by. That noted, building material price inflation has moderated considerably, which is a welcome relief from the rapid-run up over the past several years.

The construction labor market has also loosened up a bit. The Job Openings and Labor Turnover survey released by the BLS yesterday revealed that the count of job openings in the construction industry rose to 383K in April alongside an overall uptick in total job openings. Despite rising on a monthly basis, construction job openings are down from the 488K peak registered in December 2022. The quits rate also increased slightly in April, which is more-or-less back to the average rate experienced before the pandemic. While still tight, the construction labor market appears to be moving into better balance with demand cooling and fewer construction workers seeking opportunities elsewhere.

Looking ahead, the tightening in lending standards following recent banking sector volatility will certainly be a headwind for construction. The forward-looking Architecture Billings Index slipped to 48.5 in April, which suggests reduced access to credit may already be weighing on the project pipeline. That noted, the construction industry continues to benefit from structural shifts brought on by the pandemic. Residential spending rose in April thanks in large part to another solid gain in home improvement spending. The recent surge in home prices, rise of remote work and shortfall of single-family homes for homeowners to trade-up into has resulted in a notable upshift in home improvement projects.

Meanwhile, manufacturing project spending continues to boost overall nonresidential outlays. In addition to an upshift in renewable energy projects, the build-out of electric vehicle supply chains and domestic semiconductor manufacturing facilities is currently underway. Momentum should only build as more public funding from the Inflation Reduction Act and CHIPS and Science Act becomes available.

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