AGC of America: Trade tariffs could slow construction spending

Construction spending in January was unchanged from December and was moderately higher than in January 2017, according to an analysis of new government data by the Associated General Contractors of America (AGC of America). However, association officials said further gains, especially in desperately needed infrastructure investment, would be in jeopardy if the administration adopts tariffs on key construction materials.

“Construction spending in January showed a mixed pattern, with noteworthy increases in public outlays and single-family homebuilding balancing out declines in private nonresidential and multifamily investments,” said Ken Simonson, the association’s chief economist. “Unfortunately, all categories are threatened by the harmful actions under consideration regarding steel and aluminum.”

Construction spending in January essentially matched the upwardly revised December record level of $1.263 trillion at a seasonally adjusted annual rate. The January total exceeded the year-earlier level by 3.2 percent. For the month, private nonresidential construction spending rose 0.3 percent, private residential spending declined 1.5 percent, and public construction spending gained 1.8 percent. On a year-over-year basis, private residential construction spending increased 4.2 percent, private nonresidential spending slipped 1.1 percent, and public construction spending jumped 8.2 percent.

“Results for January are not necessarily indicative of how the year will play out, as abnormal weather patterns in either the latest month, preceding month or year-ago month can distort comparisons,” Simonson cautioned. “The underlying trends appear to point to a recovery in manufacturing, pipeline and power construction among private nonresidential categories; strong private and public investment in airports and schools; and a flattening or weakening of office and multifamily spending.

“However, many projects are vulnerable to steep increases in materials costs,” the economist said. “Already, prices have jumped for lumber, steel and aluminum. Potential double-digit tariffs or import restrictions on steel and aluminum could wreck the budgets for numerous infrastructure projects and private nonresidential investments. In addition, any countermeasures taken by U.S. trading partners that are affected by these measures would harm U.S. exporters, transportation and logistics businesses, and ports, which would reduce demand for a variety of construction categories.”

Association officials called on the White House and federal agencies to avoid triggering a “trade war.” The officials said tariffs on steel and aluminum would undermine the administration’s goals of dramatically boosting infrastructure investment and achieving sustained higher economic growth.

“Making construction, infrastructure and development projects more expensive by imposing new trade barriers will do far more damage to the economy than any limited benefits new tariffs or quotas might provide,” said Stephen E. Sandherr, the association’s chief executive officer. “Worse, increasing the cost of construction will only undermine the President’s ambitions to rebuild the nation’s aging and over-burdened infrastructure.”

SOURCE: Associated General Contractors of America

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