Nonresidential construction spending edged up 0.1% in July to $786.7 billion but was negative when adjusted for inflation. Spending fell on a monthly basis in six of 16 subcategories and was unchanged in three categories.
Total nonresidential spending was down 4.2% from the year prior.
“The nonresidential construction spending numbers are meaningfully worse than they initially appear,” said ABC Chief Economist Anirban Basu.
“Higher materials prices and worsening skills shortages represent primary culprits,” he added. “Many project owners are delaying projects due to elevated construction service delivery costs.”
Construction input prices were 23.1% higher in July than the year prior as the combination of a rebounding economy, supply chain disruptions caused by COVID-19, stimulus measures and labor shortages sent costs soaring.
Last month, prices for steel mill products shot up 10.8%, iron and steel prices climbed 7.8% and natural gas surged 13.5%. Those products have seen respective price increases of 108.6%, 89.2% and 146.7% over the past year, according to the U.S. Bureau of Labor Statistics.
Prices for other input costs, including fabricated structural metal products and lumber, were also sharply higher compared with year-ago levels.
It remains to be seen how long the inflationary pressures may last.
Federal Reserve Chairman Jerome Powell at his Jackson Hole symposium speech last week said inflation at these levels is a “cause for concern” but reiterated the central bank’s belief that the current pressures are temporary.
Powell signaled the Fed could begin tapering its asset purchase program before the end of this year but said rate hikes were further out on the horizon.
Fed fund futures traders at the Chicago Mercantile Exchange are fully pricing in the first rate hike to occur in January 2023.