AGC: March's 1.4% Hike in Construction Spending Not a Recovery

Construction spending bounced back from an 11-year low in March, increasing by 1.4% to a total seasonally adjusted annual rate of $769 billion, according to an analysis by the Associated General Contractors of America of new Census Bureau data. Association officials cautioned however that the industry remains weak, noting that total construction spending remains 6.7% lower than a year ago and 37% below the March 2006 peak.

"It is encouraging to see increases in construction spending across most nonresidential categories in March," said Ken Simonson, AGC's chief economist. "Considering how much construction spending has declined during the past five years, however, we are still a long way from anything that can be labeled a recovery."

Spending on lodging increased the most in March, up 6.1% for the month while down -31% for the year, followed by manufacturing (5.2% for the month, -28% for the year) and health care (2.4% for the month, -3.2% for the year.). Simonson pointed out, however, that spending on only two of the ten largest nonresidential categories was higher in March 2011 than in March 2010: highways and streets, up 0.6% for the month and 4.9% over 12 months; and power construction, up 1.8% for the month and 3.9% over 12 months.

Simonson predicted that spending on certain private construction sectors was likely to increase over the coming months, but that publicly-funded construction activity was likely to decline. "I expect we'll see improvements in the next few months in manufacturing, warehouse, hospital and data-center construction, but these gains may not offset declines in school and other public construction," he said.

Simonson noted that residential construction appeared to rise by a strong 2.6% in March but that the gain was attributable only to the extremely volatile number for improvements to existing housing, which climbed 6.9% for the month. New single-family spending dropped -1.0% in March and -9.4% over 12 months, while multifamily construction slipped -2.2% and -13.2%, respectively.

Association officials said the new spending figures reflect cuts in local, state and federal public investments in infrastructure. They noted, for example, that public sector spending on transportation is down -11.1% for the year. They added that investments in public safety facilities has declined by 15.6% while investments in sewage and waste disposal declined by -7.9% since March 2010.

"Delaying infrastructure maintenance while deferring debate on out of control entitlement spending is no way to balance the budget, but it is a good way to lose the future," said Stephen E. Sandherr, the association's chief executive officer.

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