"Under reasonably optimistic scenarios, nonresidential construction spending may not improve markedly for several quarters." —ABC Chief Economist Anirban Basu.
Summary
The nation’s nonresidential fixed investment in structures dropped 4.4 percent in the third quarter of this year following a 0.6 percent increase in the second quarter, according to the Oct. 26 Gross Domestic Product (GDP) report by the U.S. Commerce Department. Nonresidential fixed investment in equipment and software was unchanged for the third quarter following a 4.8 percent increase in the second quarter. Overall, nonresidential fixed investment fell 1.3 percent in the third quarter after a revised 3.6 percent increase in the previous quarter.
Residential fixed investment increased for the sixth straight quarter, jumping 14.4 percent in the third quarter. Exports decreased 1.6 percent as exports of goods dipped 3.5 percent and exports of services increased 3.1 percent. Imports slipped 0.2 percent in the third quarter as imports of goods decreased 1.3 percent and imports of services increased 5.5 percent.
Personal consumption expenditures increased 2 percent in the third quarter as spending on goods increased 4.4 percent and spending on services inched up 0.8 percent. Real final sales of domestic product—GDP less change in private inventories—increased 2.1 percent for the quarter following a revised 1.7 percent increase in the second quarter.
Federal government spending jumped 9.6 percent in the third quarter following a 0.2 percent decrease in the second quarter. National defense spending increased 9.6 percent while nondefense spending increased 3 percent. State and local government spending slipped 0.1 percent in the third quarter following a 1 percent decrease in the previous quarter.
Gross domestic purchases—purchases by U.S. residents of goods and services wherever produced—increased 2.1 percent in third quarter following an increase of 1.7 percent in the second quarter. Overall, real GDP increased 2 percent in the third quarter following a revised 1.3 percent increase in the second quarter.
Analysis
“Nearly every major aspect of the domestic economy expanded during the third quarter of the year,” said Associated Builders and Contractors Chief Economist Anirban Basu. “Unfortunately, that sector was nonresidential fixed investments, which overlaps substantially with nonresidential construction activity.
“Many economists attribute ongoing sluggish macroeconomic performance to a heightened level of uncertainty emerging from both foreign and domestic sources,” said Basu. “However, certain segments of the economy are doing just fine, uncertainty notwithstanding.
“Weak job growth continues to suppress the demand for new space while new regulatory framework appears to be limiting the pace of commercial real estate lending,” said Basu. “There is little reason to believe these dynamics will change significantly during the current quarter.
“There is a consensus among economists that once the election is behind us—and if the nation resolves its fiscal cliff issues—economic activity will pick up due to improved confidence,” Basu said. “This is possible, but those in nonresidential construction know construction spending often lags broader economic recovery by twelve to eighteen months. The implication is that even under reasonably optimistic scenarios, nonresidential construction spending may not improve markedly for several quarters.”