Construction Spending Data Shows Diverging Residential and Nonresidential Trends

The U.S. Census Bureau released its latest construction spending report yesterday, and the data highlighted some shifting patterns across residential and nonresidential sectors.

Sector	Latest Monthly % Change	Latest Annual % Change
Total Construction	-0.2	9.6
Residential	-0.7	4.5
Private Construction	-0.5	7.3
Nonresidential	0.2	13.7
Private Residential	-0.7	4.4
Private Nonresidential	-0.2	11.1
Public Construction	0.8	17.9
Public Residential	0.5	15.5
Public Nonresidential	0.8	17.9

Note: All percentages are rounded to one decimal point.

Overall, total construction spending has increased by 9.6% annually, despite a slight decrease of 0.2% from the previous month. Residential construction spending has slowed down, with a monthly decrease of 0.7% and an annual increase of 4.5%. Nonresidential construction, on the other hand, has seen a significant annual growth of 13.7%, with a slight monthly increase of 0.2%. Public construction spending has experienced a substantial annual growth of 17.9%, with a monthly increase of 0.8%.

At the headline level, total construction spending dipped by 0.2% in March compared to February, according to the seasonally adjusted estimates. However, the year-over-year growth remained extremely robust at 29.6%.

Residential Construction Cools, Nonresidential Stays Hot

Breaking it down further, we saw residential construction spending contract by 0.7% month-over-month in March. This continued a cooling trend as elevated mortgage rates and high home prices have weighed on buyer demand over the past year. 

Year-over-year, residential construction spending was still up a healthy 14.5% annually. But the slowing monthly pace aligns with other housing data pointing to a moderation in that sector.

In contrast, nonresidential construction spending rose by 0.2% in March and clocked a sturdy 13.7% annual growth rate. The nonresidential segment has benefited from solid business investment in projects like commercial real estate, manufacturing facilities and infrastructure.  

Private vs Public Split

When separating out private vs public spending, private nonresidential outlays edged down 0.2% for the month, but were still up 11.1% compared to March 2023 levels.  

Meanwhile, public nonresidential construction had a very strong month, rising 0.8% in March and surging by 17.9% year-over-year. This reflects increased state and federal funding flows into infrastructure programs.

Economic Crosscurrents 

Overall, the construction spending data depicts crosscurrents in the economy. As interest rates have risen to combat inflation, the housing market has slowed from its torrid pandemic pace. But business investment and public sector construction have remained quite elevated.

Looking ahead, the trajectory of construction spending will depend on the broader economic environment, policymaker actions, business capital expenditure plans, and labor/materials availability. But the sector overall continues motoring along at historically high levels nationally.

For industry participants and economic analysts, keeping a close eye on these construction trends will be crucial in the months ahead. The latest release affirms this is one of the bright spots helping prop up the U.S. economy so far in 2024.