U.S. Construction Update: Spending Beats Expectations

The Commerce Department announced that construction spending in the U.S. rose by 0.9% in May, surpassing economists' expectations of a 0.6% increase. According to data from Reuters, this increase was driven primarily by a severe shortage of houses for sale, which boosted spending on single-family homebuilding. 

April had also seen a rise of 0.4%, indicating a positive trend. Year-on-year, construction spending increased by 2.4% in May.

Mid-2023 Construction Update

Investment in residential construction bounced back by 2.2% in May after a drop of 0.9% in the previous month. Spending on private construction projects increased by 1.1%, with a 1.7% acceleration in spending on single-family housing projects. 

Despite the Federal Reserve's monetary policy tightening cycle since the 1980s affecting the housing market, the demand for single-family homes is driving construction, with housing starts soaring in May. 

Meanwhile, the report revealed that spending on multi-family housing projects decreased by 0.1%, and spending on private non-residential structures like gas and oil well drilling fell by 0.3%. Public construction projects saw a slight increase of 0.1%, with state and local government spending rising by 0.4%, while outlays on federal government projects dropped by 2.5%.

Why Housing & Construction Matters to Commercial Fleets

The level of U.S. construction spending can indeed have an impact on the commercial and service fleet industry. Making a ripple effect through the industry, here are just a few impacts you might not have noticed before:

1. New-Vehicle Demand 

Transporting materials, equipment, and workers is vital when constructing buildings, houses, bridges, roads, and other infrastructure. A rise in construction spending usually leads to a greater demand for commercial vehicles, which include specialized vehicles, trucks, and vans. 

These vehicles are necessary for transporting construction materials, tools, and workers to and from construction sites. As construction spending increases, so does the demand for commercial vehicles in the fleet industry.

2. Fleet Expansion & Replacement 

As construction spending rises, construction companies and contractors often seize the opportunity to expand their operations and satisfy the heightened demand for their services. This expansion typically entails procuring more vehicles for their fleet or upgrading existing ones with newer, more efficient models.

With multiple projects running concurrently, construction companies may need to bolster their fleet to adequately accommodate this increased workload, thereby driving up vehicle purchases from manufacturers or dealerships.

3. Vehicle Customization 

In the construction industry, there is a need for specialized vehicles that can cater to specific tasks and equipment. This includes concrete mixers, dump trucks, cranes, and other specialized vehicles crucial for completing construction projects.

When construction spending rises, there is often a corresponding increase in the customization and specialization of commercial vehicles to meet the unique requirements of construction companies. As a result, there may be greater demand for customized vehicles and specialized equipment within the fleet industry.

4. Maintenance & Repair

As construction fleets expand and their vehicles age, the demand for maintenance and repair services naturally increases. This is where the commercial and service fleet industry comes into play, offering routine maintenance, repairs, and parts replacement for these vehicles.

With the surge in construction spending, there may also be an increase in the frequency and magnitude of maintenance and repair services, which can lead to new business prospects for fleet service providers.

5. Fuel & Energy 

The fleet industry is a significant consumer of fuel and energy resources. Increasing construction activity, which leads to more vehicles on the road, can contribute to higher fuel consumption. Consequently, higher construction spending can impact the fleet industry's demand for fuel and energy resources, potentially affecting fuel prices and energy markets.

The relationship between construction spending and the fleet industry is interconnected but also influenced by various factors such as economic conditions, government policies, and market dynamics. Changes in construction spending levels can have ripple effects on the commercial and service fleet industry, shaping vehicle demand, customization trends, maintenance needs, and fuel consumption patterns.