DEEP DIVE: Construction Is Booming!

The US economy has been remarkably resilient in the face of the Fed’s aggressive tightening of monetary policy since early last year. One of the sectors that accounts for that resilience is the construction industry. In the past, rising interest rates always depressed construction, which exacerbated the resulting recessions (Fig. 1 and Fig. 2). This time, the weakness in residential construction has been offset by relatively strong private nonresidential and public construction (Fig. 3 below and Fig. 4). Here’s more:

(1/5) Private residential construction.

While single-family housing construction has been weak, that weakness has partially been offset by record spending on multi-family construction and near-record spending on home improvements, which are almost as large as spending on single-family construction (Fig. 5 below and Fig. 6).

(2/5) Private nonresidential construction.

Many of the components of nonresidential construction spending are at or near their record highs, including education, highway & street, amusement & recreation, commercial, and office (Fig. 7 and Fig. 8 below). The strength of the last two categories is surprising. They might weaken with a lag (maybe in 2024) in response to the tightening of credit conditions during 2022 and 2023. But for now, they are a source of economic strength.

Off the charts is construction spending on manufacturing facilities because of the increase in onshoring owing to federal incentives (Fig. 9). In current dollars, it is up a whopping 71.6% and 136.8% on one-year and two-year bases.