Total U.S. construction spending rose 0.2% in April from March, and March’s level was revised up 0.5% from the prior release, according to the U.S. Census Bureau. Construction spending was up 9.8% from a year earlier in April 2021, but this is deceptive since spending fell outright between February and May of last year. Construction spending in April 2021 was up 5.8% from its pre-crisis peak in February 2020. Private residential spending — almost half of the total — rose 1.0% on the month; private nonresidential spending — almost a quarter of the total — fell 0.5%; and public construction — the remaining 30% — fell 0.6%.

The K-shaped recovery is vividly apparent in the divergence between the strong and weak categories of construction. Private residential construction spending surged 29.7% from a year earlier in April, with spending on new single family homes up 39.6% and multifamily up 27.1%. Private residential construction spending was up 23% from February 2020. By contrast, private nonresidential construction spending has trended lower even as the rest of the construction industry began recovering in mid-2020; it was down 4.8% on the year in April, and down 9.0% from its February 2020 level.

Residential construction was red-hot in April, especially for single-family homes. Lifestyle changes that began during lockdown continue to fuel demand for more living space, and extremely low interest rates, stimulus checks, and high stock prices are boosting potential homeowners’ buying power. If not for the bottlenecks of construction supplies (especially lumber) and construction workers, the residential construction boom underway now could be even more buoyant. As it is, much of the apparent strength in residential construction spending in fact represents higher construction costs (wholesale lumber prices are up over 2.5x over the last year) as well as rising activity.

By contrast, construction spending for high-contact activities plummeted during the pandemic and remained depressed in April. Spending on lodging was down 22% on the year in April and down 33% from its mid-2019 peak; spending on amusement and recreation was down 24% from April 2020 and down 37% from mid-2018; and spending on private education (mostly higher ed) was down 8% from April 2020 and down 36% from mid-2018.

Nonresidential construction spending should start to recover in the second half of 2021 as Americans resume pre-crisis activities and fuel demand for these categories of nonresidential space. But nonresidential construction will remain a laggard as the recovery matures. The rise of e-commerce will weigh on demand for brick-and-mortar retail space, and the prevalence of remote work creates uncertainties about office space, and potentially big city downtowns as well.

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