Construction Spending: Definition, Importance, and Examples
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Summary:
Construction spending serves as a vital economic indicator, reflecting monthly expenditures on new construction projects in the United States. It encompasses various expenses, including labor, materials, and engineering work, and is tracked through the U.S. Department of Commerce’s Census Bureau’s Value of Construction Put in Place Survey (VIP). This data not only provides insights into economic growth, as measured by Gross Domestic Product (GDP), but also aids in forecasting, market research, and financial decision-making for government agencies and construction-related businesses.
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Understanding construction spending
Construction spending, a crucial economic metric, signifies the monthly outlay on new construction endeavors in the United States. The U.S. Department of Commerce’s Census Bureau administers the Value of Construction Put in Place Survey (VIP) monthly, which delineates residential and non-residential construction within the private sector, along with state and federal construction spending.
Housing sector
Residential construction constitutes nearly half of the total construction spending in the U.S. Housing market strength is often assessed through tracking new home constructions, a figure that typically rises when consumer confidence in job security and economic conditions is high. The U.S. Commerce Department releases statistics on housing starts monthly, indicating the commencement of new construction projects.
Nonresidential construction spending
Commercial enterprises allocate substantial sums to construction spending annually. Whether erecting new factories or expanding hotel chains, corporate expenditures contribute significantly to overall construction spending. Commercial construction projects generate employment opportunities across various sectors, including contractors, software firms, and financial institutions involved in project financing.
Public construction spending
Government allocations towards construction spending, particularly in infrastructure projects, hold considerable significance. In 2021, President Biden signed the Bipartisan Infrastructure Law, earmarking $550 billion for infrastructure investments over fiscal years 2022 to 2026. This legislation includes substantial funding for highway programs and bridge investments, reflecting the government’s commitment to enhancing national infrastructure.
Tracking construction spending
The U.S. Census Bureau has meticulously tracked construction spending for nearly six decades through the Value of Construction Put in Place Survey (VIP). This report furnishes monthly estimates of construction work’s total dollar value across private and public sectors, categorized by project type. The survey encompasses various expenses such as labor, materials, engineering work, overhead costs, interest on loans, and contractor profits.
Examples of construction spending
The U.S. Census Bureau’s monthly reports detail residential, nonresidential, and public construction spending. For instance, residential construction spending in February 2023 amounted to $852 billion, while non-residential sectors saw expenditures on lodging, offices, and healthcare facilities. Public projects received allocations for transportation, education, and conservation and development.
Frequently asked questions
What do public construction projects include?
Public construction projects encompass infrastructure needs like roads, bridges, utilities, green spaces, and broadband development.
How are housing starts affected by interest rates?
Higher interest rates lead to increased mortgage rates, typically resulting in decreased housing starts. Conversely, lower interest rates spur housing market activity, as observed during the COVID-19 recession when the Federal Reserve lowered rates to stimulate economic growth.
Why is construction spending an economic indicator?
Construction spending serves as a vital economic indicator, offering insights into current and future investment prospects while gauging the overall health of the economy. Fluctuations in construction spending provide valuable cues about economic growth or recessionary trends.
Key takeaways
- Construction spending encompasses expenses like labor, materials, and engineering work in both private and public sectors.
- The U.S. Census Bureau’s monthly construction spending report provides comprehensive insights into residential, nonresidential, and public construction projects.
- Government initiatives, such as the Bipartisan Infrastructure Law, significantly influence public construction spending and infrastructure investments.
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