Construction spending still drags

August 9, 2010
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For the 15th consecutive month, private nonresidential construction spending has fallen, slipping 0.5 percent in June, according to the Aug. 2 report by the U.S. Census Bureau. From June 2009, private nonresidential construction spending is down 24.1 percent. In contrast, total nonresidential construction spending — which includes both private and public construction — was up 0.4 percent from May and now stands at $567.5 billion in June, but is still 15.2 percent lower from the same time last year.

Eleven of the 16 subsectors of nonresidential construction posted increases for the month including conservation and development, up 7.6 percent; power-related, up 5.7 percent; and sewage and waste disposal-related construction, up 3.5 percent. However, only three subsectors reported higher spending on a year-over-year basis including transportation, up 13 percent; sewage and waste disposal, up 9.1 percent; and highway and street construction, up 1.7 percent.

Of the subsectors that had decreases in construction spending, manufacturing was down 4.1 percent; communication, down 3.7 percent; and educational-related construction spending, down 2.9 percent. Compared to June 2009, lodging is down 57.7 percent and continues to be the worst performer. Manufacturing is down 32.9 percent and office construction is down 30.5 percent.

Meanwhile, public nonresidential construction spending was up 1.2 percent for the month, but down 5 percent on a year-over-year basis. Residential construction spending was down 0.4 percent from May, but up 12.4 percent from June 2009. Overall, total construction spending — which includes both residential and nonresidential — was $836 billion in June, up 0.1 percent for the month, but down 7.9 percent from the same time last year.

Stakeholders in privately financed nonresidential construction continue to look for signs of recovery. However, this report from the U.S. Census Bureau shows that the resurgence of this important construction industry sector has yet to begin.

The explanation behind the ongoing decline in construction spending continues to follow the same story line — tightened credit lending standards, elevated vacancy rates and generally insufficient levels of job creation. With the momentum of the U.S. recovery now waning, it will be many more months, if not years, before privately financed activities begin to recover in earnest.

At the same time, publicly financed activities continue to expand, particularly those most closely aligned with the stimulus package passed in February 2009. For many contractors, the stimulus has ushered in a reasonably busy period. However, even these operators have reason to be nervous since the stimulus money will eventually run out.

Signs of the future can be also observed in today’s report. For example, spending related to education, which declined significantly last month, is at least partly a reflection of the diminished financial health among state and local governments, and corresponding downsizing in capital budgets.

Anirban Basu is chief economist with the Associated Builders and Contractors, a national association with 77 chapters representing 25,000 merit shop construction and construction-related firms with two million employees.

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