Construction spending underwhelms in June

Wells Fargo Research Team Wells Fargo

Pandemic-Related Impacts Are Weighing on Nonresidential Construction

Construction spending once again underwhelmed in June, with overall outlays inching 0.1 percent higher, following a 0.2% decline in May. Residential construction continues to plow ahead, with outlays rising 1.1% in June and outlays for the first six months of the year up 24.5% from last year. By contrast, nonresidential construction outlays fell 0.9% in June and are down 8.1% over the year on a year-to-date basis. Nonresidential construction went into the pandemic with strong momentum, but the project pipeline quickly dried up as more businesses tightened their belts and focused on survival. Sectors most severely impacted by COVID shutdowns have seen the largest pullbacks.

Construction Spending Remains Under Pressure

Total construction spending increased 0.1% in June, coming off a slight upward revision for May. Private outlays rose 0.4%, while public outlays fell 1.2%. All the decline was in nonresidential outlays, which fell 0.7% in the private sector and declined 1.2% in the public sector. Spending for new residential projects continues to increase, with private outlays rising 1.1% and public outlays climbing 0.8%.

Within the public sector, the bulk of June's 1.2% decline was in highway and street projects, which fell 5.3%. Spending for educational facilities fell 0.8%, and outlays for public amusement and recreation facilities declined 1.1%. On a year-to-date basis, spending is down 7.1% or nearly $12 billion. Most of that drop has been in educational facilities (-8.7% and $3.8B), public safety (-29% and $2.6B) and transportation projects (-6.8% and $1.4B).

The weakness in highway & street and transportation projects highlights the need for additional funding for infrastructure projects. While a bill may soon work its way through Congress, there is considerable funding already in place. Many state and local governments are sitting on a mountain of cash provided by federal stimulus programs, which could fund outlays for street and sidewalk construction, public safety facilities and education projects later this year.

Source: U.S. Department of Commerce and Wells Fargo Securities

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Wells Fargo Research Team

Wells Fargo

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