Posted July 2, 2020

Construction spending declines in May

Fall in U.S. construction spending in May shows weakness of country’s construction industry.

Following the announcement by the U.S. Bureau of Statistics that construction spending fell by 2.1 percent in May from a month earlier. Dariana Tani, economist at GlobalData, a leading data and analytics company, offers her view on the situation.

“May’s construction spending data shows the ongoing weakness in the U.S. construction industry amid the COVID-19 pandemic. Overall, construction spending was driven down by a decline in spending on private construction projects offsetting an increase in spending on public projects. 

“GlobalData expects the U.S. construction industry to contract by 6.5 percent in 2020 and 2 percent in 2021, down from the previous growth forecast of 0.6 percent and 1.4 percent before the COVID-19 pandemic started. Sectors such as commercial, residential and industrial are anticipated to be the hardest hit amid the collapse in business and consumer confidence, while sectors such as institutional and infrastructure will also be affected although to a lesser extent.

“As Congress and the White House contemplate the next phase of yet another unprecedented government response to limit the economic impact of the COVID-19 outbreak, Democrats and President Donald Trump are increasingly raising the prospects of passing a multi-trillion dollar infrastructure plan that could generate millions of jobs and stimulate the economy and the construction industry. However, key risks remain. With the number of new COVID-19 cases surging across the country, as many states are reopening their economies, the construction industry is expected to continue to decline over the coming months. 

“A second wave in the second half of 2020 and the potential increase of caseloads in underserved communities could put at risk the recovery of the labor market and increase the risk that the pandemic could result in long-lasting damage to the economy as new lockdown restrictions will have to be put in place again. Furthermore, heightening political uncertainty over the upcoming presidential election, lower oil prices, and financial volatility are other factors that could undermine confidence.”