The U.S. economy contracted at an annualized rate of 0.9% in the second quarter of 2022, marking two consecutive quarters of economic decline, according to data released Thursday by the Bureau of Economic Analysis.
Two consecutive quarters of economic contraction is commonly used as a practical definition of a recession.
By those standards, the U.S. is officially in one.
But despite the gloomy numbers, Associated Builders and Contractors Chief Economist Anirban Basu said during a recent webinar the U.S. economy is not currently in a recession and predicts the rest of 2022 will be a year of growth. He did add “2023 is fraught with risk.”
“I’m going to suggest that we are not in a recession,” said Basu during the webinar. “...I think this year will be a year of growth.”
Both unemployment data and materials prices suggest the American economy has not yet dipped into a recession, according to Basu. The U.S. unemployment rate sits at 3.6%, just about where the rate was before the pandemic, according to the Bureau of Labor Statistics.
At the same time, the Producer Price Index for material inputs to construction tends to dip negative during recessions. It did so during the early 2000s recession, the Great Recession and the COVID-19 recession. It’s up 20.1% in June 2022, he said.
Nevertheless, nonresidential construction shows signs of a weakening economy. In June, nonresidential construction starts plummeted 14% as construction markets began to react to growing odds of recession, according to Dodge Data & Analytics.
Nonresidential construction spending also declined 0.5% in June, according to BLS numbers released Monday, its second consecutive monthly decline.
Spending on manufacturing projects, however, has grown 21.6% since before the start of the COVID-19 pandemic. The recently passed CHIPS Act should help the manufacturing sector continue that performance.
“While it is possible that we have passed the point of peak inflation, nominal growth is also set to slow in the context of weakening consumer spending, pervasive pessimism, rising borrowing costs and a global economy that is aggressively downshifting,” said Basu. “This suggests that the already weak performance of nonresidential fixed investment in structures seen today may deteriorate further over the next several quarters.”
Another important indicator — backlog — remains strong, according to the June 2022 ABC Construction Backlog Indicator. The reading is up 0.4 months from June 2021. However, according to a poll run during the webinar, 12% of respondents said their backlog declined slightly, while 4% said considerably. Basu said “that’s telling because in previous iterations of this question, we had far fewer people suggest that backlog was declining.”
“We just may be seeing the front edge of the contractor population experiencing some pressure as elevated delivery costs are inducing some project owners to delay projects, maybe cancel altogether,” said Basu. “We’ll see how that performs going forward.”
After June's nonresidential spending decline was reported, however, Basu offered another thesis for sustained backlogs: more delays in finishing jobs that are already in process.
"True, backlog remains elevated," Basu said in a release. "But this may be because it is taking longer to complete projects.”