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Construction spending decreases slightly in March

Construction spending decreased 0.1% from February to March and is up 2% compared with March 2019, according to www.abc.org.

For public construction, spending increased 1.6% for the month and is up 7.6% year-to-date. Private nonresidential spending fell 1.3% from February to March and is down 1.8% year-to-date.

“Today’s data release answers precious few questions,” said Anirban Basu, chief economist for Associated Builders and Contractors, in the May 1 press release. “The great debate has been whether the combination of preexisting backlog as reported in ABC’s Construction Backlog Indicator and the classification of construction as an essential activity in much of the nation would help shield the sector from the downturn. Based on March construction spending data, industry activity largely proceeded apace, with recessionary forces impeding broader industry activity to only a limited extent.”

However, Basu said the data are inconclusive because the economic effects of COVID-19 were much worse in April than in March.

“Economically, the pandemic impacted only a portion of March,” Basu said. “Moreover, March represented only the tip of the iceberg in terms of the economic impact of COVID-19, as April was far worse. Many general contractors are in the midst of discussions with developers and other consumers of construction services regarding potential project postponements and cancellations. While the health of public finances held up in March, they collapsed in April as governors, mayors, county executives and others began to observe large gaps in budgets. According to ABC’s Construction Confidence Index, confidence in sales, profit margins and staffing levels plummeted in late March. This strongly implies that preexisting backlog may not be as potent a defensive mechanism as it typically is during the early stages of an economic downturn.

“Furthermore, there have been anecdotal reports of construction projects shutting down temporarily due to lingering concerns about the need for aggressive social distancing and associated worker availability challenges,” Basu continued. “All of this suggests that the March spending data may be supplying a false sense of industry-wide stability. Data characterizing construction spending in April and May will be far more instructive.”

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