Majority of construction spending goes into nonresidential, dominated now by a spending spree on factories.
By Wolf Richter for WOLF STREET.
Total construction spending ticked up to a record of $199 billion in July, up by 7.5% from a year ago, driven by record spending in both residential and nonresidential construction, according to data released by the Census Bureau today.
But there had been a pronounced slump in residential construction spending from mid-2022 through mid-2023, and the sector is now trying to dig out of it.
The seasonally adjusted annual rate in July, at $2.16 trillion, was up by 6.7% year-over-year, and down a hair from the records in the prior three months that had topped off a massive construction spending boom starting in 2021.
Note the 35% plunge in construction spending from 2007 into 2011, mostly driven by the collapse in spending for residential construction during the Housing Bust, and to a lesser extent by the drop in nonresidential construction during that time.
Nonresidential construction spending, which accounts for the majority (56%) of total construction spending, ticked up to a record $109 billion in July, up by 6.1% from a year ago.
The seasonally adjusted annual rate of nonresidential construction spending in July, at $1.21 trillion, was down a hair from the records in the prior three months, and up by 5.9% year-over-year.
The 45% two-year spike in 2022 and 2023 was in part a result of the eyepopping boom in spending on manufacturing plants, by far the largest segment of nonresidential construction (more in a moment); and in part the result of inflation (more in a moment).
Construction spending on manufacturing plants in July, at $19.7 billion, repeated the June record.
On the basis of the seasonally adjusted annual rate, spending rose to a record of $237 billion in July, up by 20.4% year-over-year.
The eyepopping boom of 230% since early 2021 was driven by the investments in semiconductor plants, EV plants, battery plants, and many other high-value products. We’ve discussed this phenomenon in detail, including causes, for over a year, most recently a month ago:
The share of spending on factories rose to a record of 19.6% of nonresidential construction spending, having doubled over the past four years. This is now by far the biggest segment of nonresidential construction:
The top 10 segments of nonresidential construction, in seasonally adjusted annual rates, with year-over-year growth rates:
Manufacturing: $237 billion (+20.4%)
Power: $143 billion (+10.0%)
Highway and street: $141 billion (+3.6%)
Commercial (warehouses, auto dealers & service, supermarkets, malls, restaurants, farm buildings): $125 billion (-13.3%)
Office (incl. data centers of which construction is booming, while office building construction has hit the skids): $100 billion (+3.0%)
Transportation (airports, rail, marine terminals, docks): $69 billion (+7.1%)
Healthcare: $66 billion (+1.9%)
Sewage and waste disposal: $46 billion (+10.7%)
Amusement & recreation: $40 billion (+8.5%)
Water supply: $32 billion (+16.5%)
The role of inflation in this boom in nonresidential construction spending essentially ended in early 2023, according to the Producer Price Index for construction costs of nonresidential buildings, after the two-year 35% spike from early 2021 through early 2023 (red).
Digging out of the slump: residential construction.
Residential construction spending has been recovering from the slump in mid-2022 through April 2023. That slump had come off the spike in prior years.
In July, residential construction spending edged up to a record $90 billion, from the record in June, and both squeaked past the prior record of June 2022 ($89 billion). Year-over-year, spending was up 9.1%:
The seasonally adjusted annual rate of residential construction spending in July ticked down to $952 billion.
The record occurred in May 2022 ($990 billion), driven by a boom in multifamily construction, with annual multifamily construction starts (in the number of housing units) hitting multi-decade highs in 2021, 2022, and 2023.
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