U.S. Economy Grows in Fourth Quarter, But Investment in Structures Declines Again

The U.S. economy grew at a 6.9 percent annualized rate in the fourth quarter of 2021, according to an Associated Builders and Contractors (ABC) analysis of data released January 27 by the Bureau of Economic Analysis. Investment in nonresidential structures decreased at an annual rate of 11.4 percent for the quarter and has now contracted in eight of the past nine quarters.

The U.S. economy expanded 5.7 percent in 2021, the fastest rate of growth since 1984. Investment in structures declined 8.2 percent in 2021 after contracting 12.5 percent in 2020.

“Commercial real estate is among the most compromised segments of the economy,” said ABC Chief Economist Anirban Basu. “The pandemic has profoundly shifted behavior. Remote work is far more common, and a greater fraction of business is being conducted via Zoom or other virtual platforms. The result has been higher office vacancy and reduced hotel occupancy. Neither is good for demand for construction.

“Retail bankruptcies that began during the pandemic’s first year, in part because of the dramatic move toward e-commerce, have contributed to increased store closures and vacant retail space,” said Basu. “That has further reduced demand for commercial construction services.

“However, nonresidential investment has increased in certain segments,” said Basu. “Among the most obvious are development of data and fulfillment centers, backbones of the e-commerce economy. Of course, the built environment is heavily comprised of office buildings, shopping and strip malls and hotels. Accordingly, even significant construction of data and fulfillment centers has not been sufficient to counteract the weakness in commercial construction. That said, health care and industrial construction should emerge as other sources of expanding demand for construction services during the coming months. This could help maintain contractor confidence, which continues to improve, according to ABC’s Contractor Confidence Index.”

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