August construction spending slowed

October 2, 2024

Construction spending slipped 0.1% in August after July spending was revised lower. Spending remains 4.1% above year-ago levels, propped up by private manufacturing construction, data center construction and public infrastructure spending. Construction cost inflation has cooled considerably but remains about 30% above pre-pandemic levels. Costs of inputs to construction industries were only 0.1% higher than a year ago. The construction sector continues to hire at a pace faster than the overall economy; the unemployment rate for construction workers in August was 3.2%, the lowest August reading in the history of the series.

Private residential construction spending dropped 0.3% on lower spending for single- and multifamily construction. Multifamily remains 7.5% below year-ago levels while single-family has ticked up compared to last year. Builders are resuming single-family home construction with lower interest rates and expectations for increased demand next year; applications for permits are nearing one million again. There is a speed limit to how quickly builders can ramp up activity. In the height of the housing boom after the pandemic hit, only one million homes were being completed each year. As a comparison, 1.65 million homes were completed yearly during the height of the boom in the early 2000s.

Private nonresidential construction slumped 0.1% In August from a drop in spending on healthcare, educational, commercial and power infrastructure. Data center construction continues to hit new records, growing 57% compared to last year. There is a hurdle to ramping up, as electrical equipment shortages and power delivery delays weigh on projects.

Manufacturing of computer, electronic and electrical plants (chip and battery plants) rose another 24% in August compared to the same time last year. Construction spending on these plants is now six times higher than it was in November 2021, when the Infrastructure, Investment and Jobs Act was passed.

Public construction spending rose 0.3% on stronger spending for highways and streets, healthcare and public safety, mostly at the state and local levels. Tax revenues continued to rise in 2024 but fell short of plans, which could place a damper on government outlays in fiscal 2025. The good news is that the pipeline on many projects is still strong, funded by earlier windfall gains from tax revenues and COVID-era stimulus.