ABC: Tepid GDP growth a sign construction spending may sputter

Though the economy did not have a strong ending to 2015, the data does not suggest that nonresidential construction spending is set to decline.

February 01, 2016 |
ABC: Tepid GDP growth a sign construction spending may sputter

Construction in Palo Alto, Calif. Photo: albedo20/Creative Commons.

Real gross domestic product (GDP) expanded by just 0.7% (seasonally adjusted annual rate) during the fourth quarter of 2015, according to an analysis of Bureau of Economic Analysis data released by Associated Builders and Contractors (ABC). This paltry growth follows a 2% increase during the year's third quarter and a 3.9% increase during the second quarter. For the year, GDP expanded by 2.4%, matching the rate of growth seen in 2014.

Nonresidential fixed investment shrank by 1.8% in the fourth quarter, the first time the segment has contracted since the third quarter of 2012. For the year, nonresidential fixed investment expanded by 2.9% after growing by 6.2% in 2014 and 3% in 2013.

"The economy did not end the year well," ABC Chief Economist Anirban Basu said. "Today's GDP data adds weight to the argument that the U.S. is in a corporate profits recession, an industrial recession, and was experiencing a softening of investments. With the exception of the residential building sector, business capital outlays have declined as corporations deal with a combination of sagging exports, competitive imports, declining energy related investments, rising wage pressures and healthcare costs.

"Recent turbulence in financial markets suggest that capital availability may continue to soften," Basu said. "While residential construction is likely to continue to recover given the combination of low interest rates and accelerating household formation, nonresidential construction spending growth may begin to sputter a bit as those who deploy capital become more defensive. This is not to suggest that nonresidential construction spending is set to decline. Many contractors continue to report significant and growing backlog. However, the current situation suggests that the growth in backlog and ultimately in spending may not be quite as rapid as it was earlier in 2015."

Six key input prices rose or remained unchanged in October on a monthly basis, while one remained unchanged:

  • Personal consumption expenditures expanded 2.2% in the fourth quarter after growing by 3% in the third quarter. 
  • Spending on goods grew 2.4% in the fourth quarter after expanding 5% in the third quarter and 5.5% in the second quarter.
  • Real final sales of domestically produced output increased 1.2% for the fourth quarter after a 2.7% increase in the third quarter.
  • Federal government spending increased 2.7% in the fourth quarter, the segment's largest increase since the third quarter of 2014.
  • Nondefense spending increased 1.4% in the fourth quarter after expanding 2.8% in the previous quarter.
  • National defense spending expanded by 3.6% in the fourth quarter after contracting by 1.4% during the third.
  • State and local government spending contracted by 0.6% in the fourth quarter after increasing by 2.8% in the third quarter.
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