Office construction on hold as workers remain at home

Indicating that the working from home trend is here to stay, U.S. businesses have stepped up their spending on technology and curtailed constructing offices, especially after the pandemic.

In fact, Commerce Department data this week showed that while spending on home-building has risen, spending on nonresidential construction has fallen, with commercial, manufacturing and office space projects slumping to under 15 percent of total construction outlays in March.

Business spending on structures fell in the first quarter, the Bureau of Economic Analysis (BEA) reported last week.

On the other hand, spending on technology rose, with investments in software and information processing equipment contributing more than 1 percentage point to the economy's overall 6.4 percent annualized increase in economic output in the quarter, the BEA data indicated.

Among a host of factors, this could mean that post-pandemic, the economy will be more technology-driven and less reliant on in-person transactions, leaving jobs changed and potentially fewer.

Accelerated by the pandemic, the divergence between the two types of business spending is here to stay, said Stanford economics professor Nicholas Bloom.

"This is the surge in (work-from-home) which is leading firms to spend heavily on connectivity," Bloom said, as quoted by Reuters.

He and colleagues have been surveying 5,000 U.S. residents monthly, and found that from May to December about half of paid work hours were spent on those working from home.

According to their survey, workers spent the equivalent of 0.7 percent of GDP to equip their home offices with computer connectivity, desks and other necessities, suggesting that more is being spent on technology than that indicated in business investment data.

These costs are one of many reasons Bloom feels Americans, on average, will work one day a week from home, even after the pandemic, up from about one day a month before Covid lockdowns.

American firms' reliance on hybrid working should continue to lift business spending on technology in the immediate future, said ING chief international economist James Knightley.

He predicted spending on office buildings would continue to plunge, at least until the end of the summer when most children return to school and their parents to work. However, he noted that businesses would still have to invest heavily on connectivity and computers to support the remote, or partially remote, workforce.

"I think there's still a lot more to do there," he told Reuters.