Private nonresidential construction spending edges up

April 5, 2009
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Construction spending in the private nonresidential sector rose 0.3 percent in February, according to the April 1 report by the U.S. Census Bureau. On a year-over-year basis, private nonresidential construction spending is down slightly at 0.2 percent. However, total nonresidential construction spending increased 0.5 percent on the month to $684.9 million from the revised January figure of $681.5 million. All in all, total nonresidential construction spending is up 1.3 percent from February 2008.

Gains were sporadic across the board. Only five of the 16 total nonresidential construction subsectors have recorded increases in construction spending on a year-over-year basis, with manufacturing up significantly (up 63.3 percent), followed by more modest gains in educational construction (up 6.7 percent) and power (up 5.6 percent). Nine subsectors had increased spending on a monthly basis, including conservation and development (up 6.5 percent), lodging (up 4.6 percent) and manufacturing (up 4.1 percent).

Construction subsectors experiencing decreased spending on a year-over-year basis include communication (down 31.3 percent), commercial (down 22.3 percent) and amusement and recreation (down 11.4 percent). Those construction subsectors posting the largest decreases in spending on a monthly basis include communication (down 7.4 percent), water supply (down 3.4 percent) and power (down 2.6 percent).

Public nonresidential construction spending is up 3.4 percent from last February and increased 0.8 percent for the month. Residential construction spending continues to tumble, down 29.2 percent on a year-over-year basis and down 4.1 percent from January. Overall, construction spending is down 10 percent from the same time last year and down 0.9 percent from last month. This is the fifth straight month of decline.

The private nonresidential construction spending data for February were somewhat encouraging. The slight uptick in activity ended a four-month-long losing streak during which private nonresidential construction spending had been in decline. These data are likely to be viewed by some as indication of an inflection point in the economy, with the pace of economic deterioration now slowing. Data related to retail sales, housing starts, existing home sales, new homes and durables goods orders have all recently surprised to the upside.

Among the various subsectors, manufacturing construction spending and commercial construction spending are noteworthy. Manufacturing construction spending has continued to increase at an astonishing rate, particularly given the downward trends in industrial production in recent quarters. One can speculate that this is due to vast restructuring taking place in numerous manufacturing sectors, including printing, autos and machinery, as well as the rapidly emerging trend of manufacturing green products such as solar panels and wind turbines.

By contrast, commercial construction is slipping rapidly, down more than 20 percent year-to-date. This is arguably the segment most closely aligned with consumer spending. With household balance sheets ravaged by losses in housing and financial wealth, demand for commercial space continues to decline and vacancies continue to rise.

Anirban Basu is chief economist for Associated Builders and Contractors, a national association representing 25,000 merit shop construction and construction-related firms in 79 chapters across the United States.

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