Construction spending lost ground in June

August 1, 2024

Construction spending slumped 0.3% in June after May spending was revised higher. Spending in the month was 6.2% higher than a year ago, totaling $2.15 trillion. Spending is captured in nominal dollars, which also reflect changes in prices. Input costs rose 1.8% over the same period while average hourly earnings for nonsupervisory construction workers jumped 4.5%. Materials cost inflation has cooled significantly over the past few months; however, labor shortages remain. The unemployment rate for construction workers hit 3.3% in June (the overall unemployment rate rose to 4.1% in the month), while the number of unemployed construction workers fell to the lowest level for June in 25 years.

Private residential construction spending fell 0.3% in the month, driven entirely by a 1.2% slowdown in single-family construction. Multifamily construction eked out a 0.1% gain. Residential construction has been sputtering in the face of still-high interest rates, which sidelines many would-be buyers. As expectations for a cut in interest rates grow, so do expectations for a rebound in housing activity. Pent-up demand meeting still-low supply will provide a boost to builders when rates start to fall.

Private nonresidential construction spending slumped 0.1% on lower commercial, healthcare, religious and power infrastructure spending. Manufacturing grew 0.1% in June to another record high, a rise of 19.1% compared to a year ago. Manufacturing has been dominated by a fifteen-times surge in the construction of computer, electrical and electronic plants (chip plants) since 2022, when federal incentives were passed.

The series now has data center construction broken out separately, which shows a surge in spending started in 2022, slightly before generative artificial intelligence (GenAI) software programs were first announced. The expectation is that data center construction will only continue to grow as GenAI becomes more ubiquitous. All this computing power needs a resilient electric grid. Private spending on power generation fell 0.6% in the month but was up 11.7% compared to a year ago. In 2023, spending on power generation from solar, geothermal and other renewables (excluding wind) jumped 26% from a year ago and 120% since 2020. More is expected in 2024.

Public construction spending declined 0.4% as all levels of government spending on construction fell. The largest category of spending, highway and street construction, fell 0.4%. Lower state and local government revenues this fiscal year have hampered the ability to ramp up projects. Most states’ fiscal years end in June.