Nonresidential construction slips

March 8, 2010
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The new year started on a down note for private nonresidential construction as spending fell 2.1 percent in January, according to the March 1 report by the U.S. Census Bureau. On a year-over-year basis, private nonresidential construction was 19.9 percent lower. Total nonresidential construction spending slipped 1.4 percent in January and was down 10.6 percent from the same time last year. Nonresidential construction spending totaled $615 billion on a seasonally adjusted annual rate in January.

Thirteen of the 16 subsectors that showed the largest decreases in January were lodging, down 9.8 percent; water supply, down 7 percent; communication, down 6 percent; and manufacturing-related construction, down 4.8 percent. Meanwhile, those subsectors with the largest drop in spending from January 2009 to January 2010 were lodging construction, down 45.5 percent; commercial construction, down 32 percent; manufacturing construction, down 28.5 percent; and office construction, down 25 percent.

Only three of the 16 subsectors of nonresidential construction increased spending in January, including amusement and recreation, up 1.7 percent; power, up 1.2 percent; and highway and street construction, up 1.2 percent. Five subsectors had higher construction spending compared to the same time last year. They were conservation and development, up 31.1 percent; power construction, up 14.2 percent; transportation construction, up 10.8 percent; and highway and street construction, up 5.6 percent.

In contrast, residential construction spending increased 1.1 percent for the month, but is still down 6 percent compared to January 2009. Overall, total construction spending has slowed 0.6 percent in January and was down 9.3 percent compared to the same time last year.

The data on construction spending indicates that 2010 is off to a particularly slow start. To the extent that there was any evidence of momentum, it was primarily due to government involvement at the federal, state and local levels.

Private nonresidential segments that have not benefited from government stimulus continue to slump. Some of this weakness may be attributed to the harsh winter weather in many parts of the country. However, data from future months will tell us the extent to which January's performance was seasonal as opposed to real.

February data will also be impacted by the weather. Therefore, any evidence of improvement in construction spending will likely have to wait until the March.

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

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