Construction spending edges higher in March

• Total construction spending rose 0.2% during March, which still leaves outlays 5.3% above their year-ago level.
• Residential spending advanced 1.7% during the month, driven by sturdy gains in single-family construction and home improvement spending.
• Increased household space needs and fast-rising building material prices continue to propel residential spending, which is now up 23.3% over the year.
• By contrast, nonresidential spending continues to be bogged down by the pandemic. Total nonresidential spending fell 1.1% in March and is down 7.4% over the past year.
• Public outlays dipped 1.5% in March, the third consecutive monthly decline.
• Recent gains in construction hiring hint that conditions are improving on the nonresidential side.
• The AIA's Architecture Billings Index (ABI) rose to 55.6 in March from 53.3 the month prior, reflecting a brightening outlook for commercial and industrial construction.

Rising Residential Spending Lifts Overall Outlays

Construction activity rebounded solidly in March. Total construction spending edged up 0.2% during the month, which helped to make-up for the previous month's weather-related decline. However, once again, it was a tale of two sectors. The residential sector remains white-hot, with outlays rising 1.7% throughout the month. The pandemic has spurred a need for more space and a rush of home buying. With little inventory of existing homes for sale, prospective buyers are increasingly looking to the new home market, and builders are struggling to keep up. Single-family spending rose 2.0% in March, which equates to a 26.7% year-over-year gain.

Relatively few trade-up options and soaring home values, which have significantly boosted homeowner equity, have led to a surge in additions and renovations. Home improvement spending, which rose 2.0% in the month, is up 21.7% over the past year. Demand for single-family construction and home improvement projects has been so strong that building material prices continue to skyrocket, notably for lumber. According to the NAHB, lumber prices are up roughly 250% since April of last year, increasing the cost of the average new single-family home by nearly $36,000.

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