Economic growth brings strong investment in nonresidential construction

The U.S. economy grew at an annual rate of 2.6 percent in the fourth quarter of 2018, according to an Associated Builders and Contractors analysis of data recently published by the U.S. Bureau of Economic Analysis. Year-over-year gross domestic product (GDP) growth was 3.1 percent, while average growth for 2018 was 2.9 percent.

“Today’s GDP report confirms continued strong investment in nonresidential structures in America,” says ABC Chief Economist Anirban Basu. “Construction spending data show significant expenditures on the construction of data centers, hotel rooms, theme parks and fulfillment centers. Accordingly, investment in nonresidential structures expanded to a 6.2 percent annualized rate during the final quarter of 2018. Metrics such as the Architectural Billings Index indicate that investment in structures will remain robust during the early months of 2019 and likely beyond.  

“Undoubtedly, some attention will be given to the fact that the U.S. economy expanded by just shy of 3 percent in 2018,” Basu says. “Unless that figure is revised upward in subsequent releases, it will mean that America has failed to reach the 3-percent annual threshold since 2005. But while much attention will be given to a perceived shortfall in growth, the fourth quarter figure of 2.6 percent signifies that the U.S. economy entered this year with substantial momentum. Were it not for a weak residential construction sector, 3 percent growth would have been attained. Moreover, the data indicate strength in disposable income growth and in business investment.

“It is quite likely that the U.S. economy will expand at around 2 percent this year,” Basu says. “Though interest rates remain low and hiring is still brisk, a number of leading indicators suggest that the nation’s economy will soften somewhat during the quarters ahead, which can be partly attributed to a weakening global economy. This won’t unduly impact nonresidential construction activity, however, since the pace of activity in this segment tends to lag the overall economy, and strong nonresidential construction spending is expected in 2019. Finally, ABC’s Construction Backlog Indicator continues to reflect strong demand for contractors, which have nearly nine months of work lined up.”