Construction boomlet slowing, says ABC

The Washington-based Associated Builders and Contractors (ABC) and its Chief Economist Anirban Basu say the United States economy contracted at a 1.4 percent annualized rate during the first quarter of 2022 and that investment in nonresidential structures declined along with it.

According to ABC, the investment level in nonresidential construction fell at an annual rate of 0.9 percent during the first quarter and has contracted nine out of the past 10 quarters, ABC cites its own analysis of data released in late April by the U.S. Bureau of Economic Analysis for those observations.

“The economy’s woeful performance during 2022’s first quarter complicates matters,” says Basu. “Conventional wisdom says the economy has enough momentum to contend with the tighter monetary policy the Federal Reserve is pursuing to countervail inflation. Today’s data indicate that the economy is weaker than thought, which means the Federal Reserve will have a very difficult time curbing inflation without driving the economy into recession in late 2022 or 2023.”

Continues the economist, “That said, the economy should manage to generate some positive momentum during the next two to three quarters. Consumer demand for goods and services remains strong. The omicron variant affected the economy during the first quarter and that does not appear to be the case during the second. Global supply chains have been adjusting to the dislocations caused by the Russian-Ukraine war. Many state and local governments are flush with cash and continue to plan for a period of elevated infrastructure outlays.”

Basu points to one other potential “bit of good news.” Comments Basu, “The weakness exhibited by the economy during the first quarter may persuade monetary policymakers to raise interest rates less aggressively. This is a matter of significance for nonresidential contractors, who have become less confident in recent months, according to ABC’s Construction Confidence Indicator.”

Higher interest rates could make developers even less included to start a project, says Basu. “Investment in structures continues to decline in America, in part due to weakness in office, lodging and shopping mall segments. Presumably, additional rapid increases in borrowing costs would further dampen new construction in these categories. It may be that the Federal Reserve will raise interest rates more gradually than they would have knowing that the U.S. economy is already rather fragile.”