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Demand for Nonresidential Construction and Public Works Will Decline Amid Ongoing Pandemic Concerns, Worsening State and Local Budgets as Association Officials Call for New Recovery Measures

Construction spending in December exhibited sharply varied trends, with downturns from a year earlier in every private category, mixed results for public construction, and double-digit increases in residential construction, according to an analysis of new federal construction spending data by the Associated General Contractors of America. Association officials said the new figures demonstrate how the pandemic is boosting demand for new housing while undermining demand for most other types of construction projects.

“Private nonresidential construction has declined for six months in a row, and the slide is accelerating,” said Ken Simonson, the association’s chief economist. “While some categories of public construction have held up so far, state and local budget problems are likely to drive a downturn in public project starts in the next few months.”

Construction spending in December totaled $1.49 trillion at a seasonally adjusted annual rate, an increase of 1.0 percent from the pace in November and 5.7 percent higher than in December 2019. But the gains were limited to residential construction, which soared 3.1 percent for the month and 20.7 percent year-over-year. Meanwhile, private and public nonresidential spending fell 0.8 percent from November and 4.8 percent from a year earlier­.

Private nonresidential construction spending slumped 1.7 percent from November to December and 9.8 percent from December 2019. All 11 private nonresidential categories in the government report declined from a year earlier.

The largest private nonresidential segment, power construction, fell 10.8 percent year-over-year despite a gain of 0.6 percent from November to December. Among the other large private nonresidential project types, commercial construction—comprising retail, warehouse and farm structures—slipped 1.4 percent year-over-year and 2.8 percent for the month. Manufacturing construction tumbled 17.6 percent from a year earlier and 5.6 percent for the month. Office construction declined 3.3 percent year-over-year despite edging up 0.2 percent in December. Healthcare construction fell 8.7 percent from the year before and 3.0 percent since November.

Public construction spending increased 3.0 percent year-over-year and 0.5 percent for the month. Results were mixed among the largest segments. Highway and street construction rose 3.9 percent from a year earlier and 0.9 percent for the month. Educational construction increased 4.5 percent year-over-year and 0.6 percent in December. But spending on transportation facilities declined 1.0 percent for the year despite a gain of 0.9 percent in December.

Private residential construction spending increased for the seventh-straight month, jumping 20.7 percent year-over-year percent and 3.1 percent in December. Single-family homebuilding leaped 23.8 percent compared to December 2019 and 5.8 percent for the month. Multifamily construction spending climbed 17.8 percent for the year and inched up 0.1 percent for the month.

Association officials said commercial construction was likely to suffer amid weakening demand unless Congress and the Biden administration enact new recovery measures, including backfilling local construction budgets and passing new infrastructure funding. They said the new federal investments were needed to sustain construction employment levels in many parts of the country until private sector demand recovers.

“Even as they work out details on the latest coronavirus relief plan, Congress and the Biden administration need to start work on measures to rebuild the economy and recover lost jobs,” said Stephen E. Sandherr, the association’s chief executive officer. “One of the most effective ways to help the newly unemployed will be to rebuild aging infrastructure and maintain state and local construction budgets.”