Construction Spending Stirring, But Rebound Still Months Away

Three straight months of growth up to November suggest the construction economy may have bottomed in August 2010

  • Construction spending increased 0.4% in November.
  • Excluding improvements—a better measure of activity—spending was also up 0.4%.
  • Estimated levels for September and October were raised, due to upward revisions to private spending, which offset smaller downward revisions to public spending.
  • Private construction increased 0.3%; a 0.7% increase in residential spending offset a 0.1% drop in nonresidential construction.
  • Public construction increased 0.7%. 

Construction spending increased for the third straight month in November. It is too soon to tell if this sector, which has been in decline since March 2006, hit bottom in August 2010. If it did, a solid rebound is unlikely.  Spending on single- and multi-family homes is likely to remain flat over the next few months, since housing starts, which have been essentially flat over the past 24 months, show no signs of taking off soon.  Meanwhile, private nonresidential spending is still in decline, although the pace is moderating, while stimulus spending on infrastructure, which was behind the recent surge in public spending, is petering out.

Private nonresidential spending slipped again in November, but the rate of decline is moderating.  Three categories -- commercial, manufacturing, and lodging -- fell to their lowest levels since the economy entered recession in December 2007.  However, a number of categories, including amusement and recreation, health care and religious construction appear to be growing again, while office, communication and transportation construction seem to be testing the bottom.

Public spending increased 0.7%, despite a small decline in the components that make up infrastructure spending (highways and streets, power, transportation and sewage and waste disposal). Although additional infrastructure spending is in the pipeline, by the third quarter of 2011, spending levels are likely to start dropping.