Private nonresidential construction spending slips in August

October 11, 2010
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In a sign that the construction industry is mired in its own recession, private nonresidential construction spending slipped 1.4 percent in August, according to the Oct. 1 report by the U.S. Census Bureau. In addition, private nonresidential construction spending is down 24.2 percent compared to the same time last year. However, total nonresidential construction spending — which includes both privately and publicly financed construction — was up 0.6 percent for the month but down 13.6 percent on a year-over-year basis. Total nonresidential construction spending in August now stands at $562.7 billion.

Of the eight nonresidential subsectors posting spending declines in August, power construction was down 2.6 percent; commercial construction dropped 2.2 percent; and communication construction fell 1.8 percent. However, on a year-over-year basis, lodging construction is down 52.0 percent; manufacturing construction is down 35.4 percent; and office construction is down 31.4 percent.

In contrast, eight of the 16 nonresidential construction subsectors posting increases in spending for the month include highway and street, up 5.1 percent; amusement and recreation, up 4.3 percent; and sewage and waste disposal construction, up 4.3 percent. Four subsectors had increases in construction spending compared to August 2009 including conservation and development, up 18.3 percent; sewage and waste disposal, up 18.1 percent; and water supply construction up 7.4 percent.

Meanwhile, residential construction spending was flat in August and down 0.6 percent year-over-year. Total construction spending — which includes both residential and nonresidential construction — edged up 0.4 percent in August, but is down 10 percent from the same time last year.

In recent days, we have been alerted that the nation's recession ended nearly 16 months ago and that the U.S. economy is now in recovery. However, we continue to witness the familiar pattern of construction spending growth in publicly financed segments as opposed to the ongoing deterioration in privately financed segments.

Overall, construction spending remains roughly flat in America, but this perspective masks what is truly occurring. Last month, publicly financed construction activities rose 2.4 percent while privately financed activities shrank 1.4 percent. The implication is that privately financed construction remains mired in its own recession.

The question remains whether or not privately financed construction activities will acquire some positive momentum with publicly financed construction winding down in a number of categories as stimulus package monies steadily whittled away. For now, there is no evidence of substantial improvements in the underlying conditions that influence privately financed construction spending, including signs that banks will loosen lending standards any time soon, making it difficult for developers and owners to get financing.

In short, the overall construction outlook remains somewhat negative given the anticipated slowing of publicly financed construction.

Anirban Basu is chief economist for 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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