Is Tepid GDP Growth a Sign For Future Construction Spending?February 10th, 2016 | Category: Industry News
Real gross domestic product (GDP) grew at a notably low rate in the fourth quarter of 2015. GDP expanded by just 0.7 percent (seasonally adjusted annual rate) during the last three months of the year, according to analysis report of Bureau of Economic Analysis data released by Associated Builders and Contractors (ABC).
That follows a 2-percent increase during the third quarter and a 3.9-percent increase during the second quarter. For the year, GDP expanded by 2.4 percent, matching the rate of growth seen in 2014.
According to ABC, nonresidential fixed investment shrank by 1.8 percent 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 percent after growing by 6.2 percent in 2014 and 3 percent in 2013.
“The economy did not end the year well,” says ABC chief economist Anirban Basu. “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.”
Basu says the recent turbulence in financial markets suggests capital availability may continue to soften.
“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,” he says. “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 percent in the fourth quarter after growing by 3 percent in the third quarter. Spending on goods grew 2.4 percent in the fourth quarter following a 5-percent increase in the third quarter and a 5.5-percent jump in the second quarter.
Real final sales of domestically produced output increased 1.2 percent for the fourth quarter after a 2.7-percent increase in the third quarter. Federal government spending increased 2.7 percent in the fourth quarter, the segment’s largest increase since the third quarter of 2014.
Nondefense spending increased 1.4 percent in the fourth quarter after expanding 2.8 percent in the previous quarter. National defense spending expanded by 3.6 percent in the fourth quarter after contracting by 1.4 percent during the third. State and local government spending contracted by 0.6 percent in the fourth quarter after increasing by 2.8 percent in the third quarter.