As output growth rises (from 1.6% two years ago to 3.6% this year), businesses are driving investment in plants and equipment to create capacity to keep pace with demand. The recent spike in domestic oil prices is adding to this demand, as producers have increased investment in energy-related production. In addition, incentives included in the Tax Cut and Jobs Act are boosting fixed investment in equipment from 6.1% last year to 7.5% this year. All of this translates to growth in construction.
In the first quarter of 2018, total construction spending nationally increased 1.4% year over year (y-o-y), reaching $1,058.5 billion (real terms, annual rate). Spending declined 0.1% from the previous quarter. In terms of regions, total construction spending was mixed during the ﬁrst quarter of 2018 as two regions saw gains over their year-earlier positions, with growth concentrated in the western United States. The strongest spending increase was in the Paciﬁc region (+17.1% y-o-y). Similar growth patterns in the Mountain region saw that area rank second in overall construction growth (+12.2%). On an annual basis, total construction in 2017 was mixed, with six out of the nine regions showing declines. The South Atlantic region also showed growth, posting a gain of 2.0%, as it continued to boast strong residential construction numbers and below-average declines in nonresidential structures spending.
In terms of sectors, spending growth was strongest in the residential market (+ 4.8% y-o-y). The nonresidential structures segment realized a decline in spending of 0.3% y-o-y in the first quarter. Growth in the commercial market bounced back with a 1.3% y-o-y increase, following a decline in the previous quarter of 1.3% y-o-y. The fourth-quarter decline was the first decline since the middle of 2011. Healthcare spending continued to increase, while spending on education construction faltered and was down year over year. The manufacturing segment continues to report lower spending, with Q1 marking nine consecutive quarterly declines. Spending on infrastructure construction declined by 2.0% y-o-y in Q1, as gains in water, sewer, and transportation spending were offset by declines in the remaining segments.
Total construction spending in the United States increased just 0.9% in 2017. Spending growth was led by gains in the residential market, while spending on nonresidential structures remained flat. Infrastructure spending declined 7.2% y-o-y in 2017. Total growth will continue at a stronger 3.4% rate in 2018, as strength in residential spending is bolstered by a turnaround in nonresidential spending. Spending growth is expected to remain positive, although slower in 2019, increasing at a more moderate 1.9% over the year.
Between 2017 and 2022, total construction spending is expected to increase at a 0.9% compound annual growth rate (CAGR). Over this period, spending growth will be driven by the infrastructure market, with a boost from residential spending. Weakness will be evident in the nonresidential structures segment, as several components (office and lodging) slow after years of very robust growth.