First Decline in Eight Months

• The value of construction put in place in the U.S. fell 0.1% in May from April.
• Total private construction spending in May was virtually unchanged from the revised April estimate.
• Public construction spending fell 0.8% in May from April.
• Rising interest rates, tangled supply chains, and labor shortages are all headwinds facing the construction sector.

Construction spending in May registered at $1.8 trillion, a small 0.1% decrease from the upwardly-revised April estimate, according to the Census Bureau. This was the first decline in construction spending since September 2021. May’s decline in construction spending was against PNC’s expectation for a 0.6% month-over-month gain and consensus expectations for a 0.4% increase.

Total private construction was unchanged on the month. Private residential construction spending was up 0.2% in May from April, while private nonresidential spending fell 0.4%. Residential spending, excluding home improvements, which the Bureau of Economic Analysis (BEA) uses in the calculation of GDP, was up 18.7% in May from a year ago but spending growth has declined in every month this year. This is consistent with other housing data which show some cooling in the housing sector. Nonresidential construction spending was down 0.6% in May from April.

New multifamily construction spending was flat in May from April and was down 3.6% from May 2021. With low rental vacancy rates, declining affordability for single-family homes, and rising rents, multifamily construction spending should recover in the near term although rising interest rates, labor shortages, and tangled supply chains remain headwinds.

Total public construction spending fell 0.8% on the month. Public residential construction spending fell 0.7% while public nonresidential construction spending declined 0.8% on the month. The decline in public nonresidential construction spending was driven by a 2.3% month-over-month decline in highway and street spending and a 7.3% decline in conservation and development spending. 

Despite the small decline in construction spending in May, construction should be a mild contributor to U.S. economic growth through 2022. Commercial construction will play a more important role in growth in the second half of 2022 as vacancy rates fall and rents rise. Public construction spending will continue to lag private construction spending in the second half of the year but should increase in the next couple of years as infrastructure spending ramps up.

The PNC Financial Services Group, Inc. is one of the largest diversified financial services institutions in the United States, organized around its customers and communities for strong relationships and local delivery of retail and business banking including a full range of lending products; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; wealth management and asset management. For information about PNC, visit www.pnc.com.