The U.S. economy grew at a 6.9% annualized rate in the fourth quarter of 2021, according to an Associated Builders and Contractors analysis of data recently released by the Bureau of Economic Analysis. Investment in nonresidential structures decreased at an annual rate of 11.4% for the quarter and has now contracted in eight of the past nine quarters (see Table 1).
The U.S. economy expanded 5.7% in 2021, the fastest rate of growth since 1984. However, investment in structures declined 8.2% in 2021 after contracting 12.5% in 2020.
“Commercial real estate is among the most compromised segments of the economy,” said ABC Chief Economist Anirban Basu. “The pandemic has profoundly shifted behavior. Remote work is far more common, and a greater fraction of business is being conducted via Zoom or other virtual platforms. The result has been higher office vacancy and reduced hotel occupancy. Neither is good for demand for construction.”
However, not all nonresidential investment is in decline. Certain segments have seen increases, and contractor confidence is on the rise. “Among the most obvious are development of data and fulfillment centers, backbones of the e-commerce economy,” said Basu. “Of course, the built environment is heavily comprised of office buildings, shopping and strip malls, and hotels. Accordingly, even significant construction of data and fulfillment centers has not been sufficient to counteract the weakness in commercial construction. That said, health care and industrial construction should emerge as other sources of expanding demand for construction services during the coming months. This could help maintain contractor confidence, which continues to improve, according to ABC’s Contractor Confidence Index.”
A recent press release from ABC reported that its Construction Confidence Index readings for sales, profit margins, and staffing levels increased in December. All three indices stand above the threshold of 50, indicating expectations of growth over the next six months (see Table 2). “Demand for construction services in America remains strong,” said Basu. “Contractors have been upbeat about sales and employment prospects for months. What changed in December is that a growing fraction of contractors now believe that profit margins will rise during the next six months despite rising costs due to labor shortages and volatile materials prices.”
