The construction industry started 2024 with a modest decline, indicating the lingering impact of seasonal factors and broader economic headwinds.
Total Construction Spending
Total construction spending fell 0.2% in January, marking a slight downturn from the previous month. This decline was largely attributed to weakness in the nonresidential sector, which includes commercial and public projects. Notably, manufacturing project spending continued to rise, but it was offset by significant declines in educational, retail, warehouse, and lodging construction.
Residential Construction Spending
In contrast to the nonresidential sector, residential construction spending rose solidly in January, supported by a 0.6% increase in single-family outlays. Home builders appear to be encouraged by the low supply of existing homes and the prospect of a soft economic landing, which could lower financing costs. However, multifamily spending declined by 0.6%, reflecting a slowdown in new apartment starts.
Nonresidential Construction Spending
Nonresidential construction spending experienced a notable decline in January, driven by a sharp drop in commercial construction. The slowdown in commercial construction starts over the past year, coupled with uncertain demand prospects, higher interest rates, and reduced credit access, suggests further declines in nonresidential spending in the coming months.
Table: Construction Spending by Category (January 2024)
| Category | % Change from Previous Month |
|---|---|
| Total | -0.2% |
| Residential | 0.2% |
| Nonresidential | -0.7% |
| - Educational | -1.0% |
| - Retail | -0.9% |
| - Warehouse | -0.8% |
| - Lodging | -0.7% |
| - Manufacturing | 0.5% |
Single-Family Construction Continues to Drive Residential Growth
Single-family construction has been the driving force behind residential spending growth in recent months. Home builders are responding to the shortage of existing homes on the market and are optimistic about the potential for a soft economic landing.
Outlook for Construction Spending
The outlook for construction spending in the coming months remains uncertain. While residential spending is expected to remain supported by a low supply of existing homes, nonresidential spending could continue to decline amid the broader economic slowdown. The escalation of geopolitical tensions and ongoing supply chain issues also pose challenges to the industry.
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