More construction spending in November; 2017 looks favorable

Jan. 4, 2017

Construction spending hit a 10-year high in November 2016 with monthly and year-over-year gains in both public and private categories, according to an analysis by the Associated General Contractors of America. Association officials said the November data indicates that the 2017 outlook for construction is favorable even as they cautioned that demand will vary for different types of construction projects.

"These numbers confirm what contractors have been reporting—that there was no let-up in demand last year," said Ken Simonson, the association's chief economist. "Most contractors expect to remain busy in 2017, as well, although there will be a shift in the types of projects that are most active. Office construction is especially hot, while manufacturing and apartment construction are slowing sharply, and public investment is a major question mark."

Construction spending in November totaled $1.182 trillion at a seasonally adjusted annual rate, the highest total since April 2006, Simonson said. He added that the November rate was up 0.9% from the month before and up 4.1% from the November 2015 level.

Private residential construction spending increased by 1.0% between October and November 2016 and rose 3.0% over the past 12 months. Spending on multifamily residential construction slipped 2.7% for the month but was 11% higher than in November 2015, while single-family spending climbed 1.8% for the month but dipped 0.9% from a year earlier.

Private nonresidential construction spending grew by 0.9% for the month and 6.4% year-over-year. The largest private nonresidential segment in November was power construction (including oil and gas pipelines), which gained 0.5% for the month and 1.5% over 12 months. The next-largest segment, commercial (retail, warehouse and farm) construction, rose 0.3% in November and 12% year-over-year. Manufacturing construction decreased 1.1% for the month and is down 8.0% from a year before. Private office construction spending reached an all-time high, rising 1.9% for the month and 31% compared with November 2015.

Public construction spending moved up 0.8% from October to November and 2.6% from the November 2015 rate. However, public totals have been volatile for the past two years, Simonson said. He cautioned that federal funds for infrastructure remain a weak point and that a number of states are facing new fiscal challenges that may jeopardize investment in infrastructure and public universities.

Association officials said the November spending data offers some early insight into the outlook for construction in 2017. They added that the association will release its annual Construction Hiring and Business Outlook on January 10 which is based on survey results from construction firms across the country. That Outlook offers insights into whether firms plan to hire new employees, which market segments they expect to grow in the coming year and the significant challenges firms expect to face in the coming months.

"Now that construction spending levels are approaching prior peak levels, we want to know whether the industry will continue to expand this year," said Stephen E Sandherr, the association's chief executive officer. "One factor driving the outlook for 2017 will be whether the new president and congress can find a way to make needed infrastructure investments, cut regulatory burdens, and provide relief for rising health care costs."