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Nonresidential Construction Hits New High, Experts Warn Coronavirus Might Stunt Gains

Nonresidential construction spending across the U.S. hit an all-time high in January, totaling nearly $807 billion, according to an analysis from the Associated Builders and Contractors (ABC).

connection 4884862 640smallThe data, published initially by the U.S. Census Bureau, shows nonresidential spending was up on 5.1% year-over-year on a “seasonally adjusted annualized basis” and 1.6% in January. Both private and public nonresidential spending rose, the analysis reads, with public nonresidential injections up 12.3% year-over-year. “Despite all the focus on the dislocating impacts of the coronavirus, construction—a key element of the U.S. economy—continues to perform,” said Anirban Basu, chief economist for the ABC. “For the first time in history, the volume of nonresidential construction spending exceeded $800 billion on an annualized basis and now stands at an all-time high.”

Basu said the numbers reflect boarder momentum for the economy spanning several years, and also pointed out the construction backlog “remains healthy.” Demand for both construction and funding resources, he said, continues to rise.

“That said, there is no question that the coronavirus has significantly compromised both global and national economic momentum over the past two to three weeks,” said Basu. “U.S. manufacturing and shipping segments have begun to soften, with significant reductions in container volume already being reported at several major U.S. ports. While the crisis is expansive enough to potentially drive the economy into recession, the question is whether the crisis is severe enough to countervail current U.S. economic momentum.”

Basu said it is unclear how concerns over the virus might impact material prices. Some components from China may be at risk, he added, with a potential for lower input prices and demand.

A separate analysis from the Associated General Contractors of America (AGC) claims the strong construction numbers reported by the federal government—all major segments saw gains, per its analysis—may have benefited from an “unusually mild winter” in large parts of the nation.

Public infrastructure spending like airports and rail were up 11.5% and highway and street construction was up 12.6% from a year prior, according to the AGC. Sewage and waste construction was up 13.9%, while water supply construction jumped 35.5%. It warned, though, that future spending could take a hit as fears surrounding the coronavirus continue to pervade the economy.

“Public spending on infrastructure, along with single-family housing, was exceptionally robust in January,” said Ken Simonson, chief economist for the AGC. “While overall economic conditions remain favorable, future construction spending levels may be affected by the growing uncertainties related to the coronavirus and its impact on the supply chain for construction components, especially those manufactured in hard-hit countries.”

Simonson pointed to materials coming from China, where the virus has caused major economic disruptions, as one example. He did note, though, contractors have not reported supply problems with respect to their projects as of the time they conducted the analysis.

“Demand for construction is benefitting from the strength of the overall economy and robust public-sector investments in many types of construction projects,” said Stephen E. Sandherr, the AGC’s CEO. “The best way to keep the economy healthy and stave off any short-term impacts the coronavirus may have is for public officials to continue investing in needed infrastructure and other public works projects.”

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