Dive Brief:
- Nonresidential fixed investment, a construction-related gross domestic product category, rose at a 1.2% annualized rate in the third quarter — driven by a 5.4% increase in physical structure underwriting — after a 2.1% second-quarter dip, the Associated Builders and Contractors reported.
- ABC Chief Economist Anirban Basu said that despite the uptick in hotel and office construction spending, nonresidential has had little impact on GDP — which rose 2.9% this quarter — for more than a year. Basu said the nonresidential fixed investment category's spending growth has been "lackluster."
- Residential investment dropped 6.2% in the third quarter, continuing the downward trajectory of a 7.7% fall in the second quarter.
Dive Insight:
While inflation, a strong dollar and higher interest rates could present future economic challenges, Basu predicted that growth in consumer spending and the resultant need for distribution centers and the like should create building demand. Still, he said nonresidential construction should only expand slightly in 2017.
According to the most recent Commerce Department report, overall August construction spending dropped 0.7% to a seasonally adjusted annual rate of $1.142 trillion, a decrease from July's $1.151 trillion. August's construction spending figures represent their lowest levels since the beginning of the year and the second-straight month of decreases. These results were in contradiction to what economists had forecast, given low interest rates and other positive indicators. However, the 0.9% dip in residential was in line with another Commerce Department that revealed a 5.8% decline in August housing starts.
Looking forward, the American Institute of Architects reported that billings were down in September, with the Architectural Billings Index at 48.4, in contrast with a 49.7 reading in August. A reading below 50 indicates a reduction in demand for architectural services, which typically precede construction spending by nine to 12 months. The Dodge Data & Analytics Momentum Index, another indicator of future construction activity, also fell in September due to a lack of commercial and institutional planning.