The U.S. economy expanded at an annualized rate of 2.1% in the fourth quarter of 2019, despite investment in structures declining at an annualized rate of 10.1%, according to an Associated Builders and Contractors analysis of data recently released by the U.S. Bureau of Economic Analysis. Investment in structures contracted for three consecutive quarters and declined 4.4% during 2019 (see Table).
In 2019, real GDP expanded by 2.3%, which was slower than the 2.9% rate of growth observed in 2018. Investment in structures contracted 4.4% in 2019 after expanding by 4.1% in 2018.
“Last year will be remembered as decent but unspectacular for the U.S. economy,” said ABC Chief Economist Anirban Basu. “Strong consumer spending, historically low unemployment, surging asset prices and healthy backlog levels, according to ABC’s Construction Backlog Indicator, were offset by soft business investment, flattening levels of nonresidential construction and soaring national debt. In addition, key segments of the economy, including manufacturing and agriculture, were particularly weak.
According to Basu, 2019 tells us little about 2020 dynamics. “Coming into last year, many expected interest rates and the general cost of capital to rise,” he said. “Instead, interest rates dipped, creating an improved environment for purchasers of construction services. Last year was also shrouded by fears of worsening trade wars, but with the ratification of the USMCA and the attainment of a first phase trade deal with China, the level of uncertainty has abated. Through the first month of 2020, this has translated into rising stock prices, which should induce greater business investment.”
Contractors are upbeat about their prospects over the next two quarters, notes Basu, according to ABC’s Construction Confidence Index. However, he says that given contracting levels of investment in structures (see Chart), it is unclear if that will persist through the end of 2020.
