AGCA: Construction Spending Hits 11-year Low in May

Construction spending fell for the sixth straight month in May, touching an 11-year low, as shrinking public outlays and residential construction swamped a rise in private nonresidential work, the Associated General Contractors of America reported today in an analysis of new Census Bureau data. The construction trade association's chief economist, Ken Simonson, predicted spending patterns would continue to be uneven.

"Despite a few bright spots - power, manufacturing, and warehousing and distribution facilities - most construction is stuck in neutral at best or is shrinking," Simonson said. "Five years removed from the peak in spending and jobs, the industry still faces a long road to recovery."

Simonson pointed out that public construction spending has skidded 12 percent in the past eight months as state and local budget cuts have outweighed federal spending on stimulus and military base realignment projects. Meanwhile, the widely reported upturn in private apartment activity has yet to show up in the Census numbers.

Simonson noted that total construction spending declined 0.6 percent from April to May at a seasonally adjusted annual rate, putting the May rate at $753 billion, down 7.1 percent from a year ago and down 38 percent from the record high in March 2006. Private nonresidential spending increased 1.2 percent from April to May but fell 5.1 percent compared with the May 2010 level. Private residential spending was off 2.1 percent for the month and 6.6 percent year-over-year. Public spending dropped 0.8 percent and 9.3 percent, respectively.

The private nonresidential gains were concentrated in power construction-emissions control upgrades to coal-fired plants, renewable power installations, transmission lines, and oil and gas distribution-which jumped 4.4 percent in May and 11.5 percent from a year earlier, Simonson observed. Private transportation investments, such as trucking and air freight facilities, rose 4.5 percent for the month and 3.7 percent over 12 months. Manufacturing construction climbed 1.8 percent in May but was down 19.6 percent since May 2010.

Simonson commented that the largest residential category is currently improvements to existing single- and multifamily properties. These expenditures fell 3.8 percent for the month and 1.0 percent year-over-year, he said. New single-family construction sank 0.3 percent and 11.9 percent respectively, while new multi-family construction dropped 2.1 percent and 6.8 percent.

The two biggest public categories-highways and educational construction, which make up more than half of the public total-both contracted sharply in May, Simonson pointed out. Highway construction fell 1.5 percent for the month and 11.3 percent year-over-year, while education spending dropped 2.3 percent and 8.7 percent.

"Looking ahead, expect to see continued strength in power, manufacturing and distribution projects, along with a pickup in market-rate apartment construction," Simonson concluded. "But declining public spending is likely to keep overall gains modest at best."

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