Private nonresidential construction ends lower

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Last year ended on a down note for private nonresidential construction spending with December coming in 0.4 percent lower than November, according to the Feb. 2 report by the U.S. Census Bureau. Despite the decline, private nonresidential construction spending finished up 8.9 percent for the year. Total nonresidential construction spending is $726.8 billion, down 0.6 percent on a monthly basis and up 8.1 percent from last December.

Meanwhile, 13 of the 16 subsectors in the nonresidential construction sector posted gains from December 2007 to December 2008 with manufacturing (up 46.8 percent), public safety (up 31.4 percent) and water supply construction (up 27.5 percent). Only seven subsectors posted increases in spending from November to December with conservation and development (up 11.6 percent), communication (up 4.9 percent) and manufacturing construction (up 3.0 percent).

However, several subsectors posting spending declines on a year-over-year basis are communication (down 21.9 percent), commercial (down 11.5 percent) and amusement and recreation (down 5.6 percent). Those showing the largest decreases on a monthly basis include power (down 3.5 percent), amusement and recreation (down 2.7 percent) and highway and street construction (down 2.5 percent).

Public nonresidential construction is also down slightly (0.8 percent) from November but up 6.9 percent from last December 2007. But the bad news for the year is housing, as residential construction continued to drop, down 3.2 percent from November and 22.3 percent from December 2007. Overall, total construction spending was down 1.4 percent from last month and down 3.6 percent from the same time last year.

What this means

With each and every passing month, the ongoing economic recession has become increasingly reflected in the construction spending numbers. The data indicates for the first time in the past several years that the value of construction put in place is now falling on a month over month basis.

Not only was December’s construction spending less than November’s total, but November’s data was revised down enough to place that month into negative territory as well. During the months ahead, the ongoing recession will continue to show weakness in construction spending.

It is for this reason that the quality of the stimulus bill that was under negotiation in Washington needed to improve. At this writing, only $150 billion of the proposed $819 billion total stimulus dollars were allocated toward construction projects. Not only does this limit the ability of the stimulus legislation to impact the economy meaningfully in the near term, but perhaps in the longer term as well.

Anirban Basu is chief economist for Associated Builders and Contractors Inc.

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