Association Officials Warn Further Contraction is Likely unless Federal Government Enacts Prompt, Major Investment in Infrastructure as State and Local Governments Face Deficits
Construction spending declined for the fourth consecutive month in June as decreases in single-family, highway and educational projects outweighed increases in several private nonresidential categories, according to an analysis by the Associated General Contractors of America of government data released today. As state and local governments face budget deficits, association officials cautioned that investments in infrastructure and other construction projects are likely to continue falling unless Congress and the Trump administration provide additional, targeted, and dedicated infrastructure funding.
“Regrettably, the overall downward trend in spending is likely to continue and to spread to more project types as work that began before the pandemic hit finishes up,” said Ken Simonson, the association’s chief economist. “Unless the federal government invests heavily—and promptly—in infrastructure projects, both public and private non-residential investment are likely to shrink further.”
Construction spending in June totaled $1.36 trillion at a seasonally adjusted annual rate, a decline of 0.7 percent from May and the lowest total in a year. After reaching a record high in February of $1.44 trillion, total spending has slumped by 6.0 percent, the steepest four-month contraction in a decade, the economist noted.
Public construction spending decreased by 0.7 percent in June, dragged down by a 1.7 percent drop in highway and street construction spending and a 2.7 percent decline in educational construction spending, the two largest public segments. The next-largest segment, transportation facilities, also contracted, by 0.6 percent.
Private nonresidential construction spending inched up 0.2 percent from May to June, led by a gain of 0.7 percent in the largest segment, power construction. Among other large private spending categories, commercial construction—comprising retail, warehouse and farm structures—slumped 1.3 percent, while manufacturing construction rose 1.7 percent and office construction edged up 0.3 percent.
Private residential construction spending shrank by 1.5 percent in June as spending on single-family homebuilding plunged 3.6 percent to its lowest level since late 2016. In contrast, new multifamily construction spending climbed for the third month in a row, posting a 3.0 percent increase from May.
Association officials said that state and local budgets are getting hammered by declining economic activity related to the ongoing pandemic. They urged Congress and the administration to quickly pass new infrastructure and recovery measures to help reverse the declines in public spending. They added that those new investments would help put many people back to work in good-paying construction careers.
“It will be hard to rebuild the economy if state and local governments lack the resources needed to improve roads, retrofit schools, and keep drinking water safe,” said Stephen E. Sandherr, the association’s chief executive officer. “Instead of letting people languish in unemployment, Washington can put people back to work simply by boosting investments in needed infrastructure and other construction projects.”