Fed Board, Report: Nonresidential Construction Spending is likely not as Weak as it Seems

“We have shown evidence that the reported estimates of nonresidential investment in 2021 and 2022 have been understated. Indeed, models based on sector-specific indicators suggest real nonresidential investment could be about 20 percent higher in the third quarter of 2022 than in the published statistics. The measurement issues likely have arisen due to the unprecedented increase in construction costs during the pandemic. Nominal spending is heavily imputed, and the imputation methodology does not allow for significant cost overruns. Also, the price indexes used to deflate nominal spending may have risen faster than some actual costs, given the ability of builders to lock in prices in advance. Over time, we would expect these measurement issues to abate, as the share of imputations declines and cost pressures ease.”