Mixed bag for March construction spending
In a good news/bad news report, private nonresidential construction spending decreased 0.7 percent in March, according to the May 3 release by the U.S. Census Bureau. On a year-over-year basis, private nonresidential construction spending is down 25.5 percent. However, total nonresidential construction spending, which includes both public and private construction, was up 0.8 percent for the month — the first monthly increase since April 2009 — but still down 17.4 percent from March 2009. As of March, the value of nonresidential construction put-in-place was $586.8 billion.
Nine of the 16 nonresidential construction subsectors had spending increases in March, including transportation, up 9.6 percent; water supply, up 6.1 percent; and manufacturing-related construction, up 5.1 percent. However all subsectors, with the exception of power-related construction, which was 22.2 percent higher, are down from March 2009 levels.
In contrast, seven subsectors had a decrease in construction spending including communication, down 12 percent; lodging, 4.5 percent lower; and commercial, which fell 1.9 percent. The worst-performing subsectors in construction spending on a year-over-year basis include lodging, down 59.7 percent; commercial, down 36.8 percent; and office, down 34.1 percent.
Public nonresidential construction spending was up 2.3 percent for the month but is down 6.8 percent from March 2009. Residential construction spending slipped 1.0 percent in March but is up 1.6 percent compared to the same time last year. Overall, total construction spending was 0.2 percent higher from February, but down 12.3 percent from March 2009.
Today's report should be interpreted as a significant piece of good news regarding the nation's nonresidential construction industry. March represented the first monthly gain for nonresidential construction since April 2009, an indication that the broader economic recovery is beginning to impact the industry. From an optimistic viewpoint, April could represent the first in a series of months of sustained recovery and expansion in nonresidential construction spending. The economy has been gathering momentum for quite some time, with consumer spending exceeding most people's expectations. If one presumes that the recovery is sustainable, it is possible to conclude that the nonresidential construction industry’s emerging recovery also will be sustained.
On the reverse side, March could represent a month of false hope in which publicly financed construction has offset the economic weakness of privately financed construction. With the stimulus package money steadily being spent, the notion is that the early recovery in nonresidential construction will not be sustained, particularly if the broader economy suffers another slump next year. This perspective continues to enjoy a certain degree of credibility since the sectors that have rebounded are those largely oriented toward publicly financed projects.
Anirban Basu is chief economist for the Associated Builders and Contractors.