Construction Spending Ends 2015 on Mixed Note

Single- and multifamily homebuilding log strong gains for month and year as public construction recovers, while private nonresidential segments increase for the year but post sharp monthly declines

Feb 5, 2016

Construction spending inched up in December from a month earlier and increased solidly over the year, but the major components showed divergent trends, according to an analysis by the Associated General Contractors of America. Association officials cautioned that slowdown in spending in a number of key, private nonresidential categories could reflect broader financial uncertainty and undermine the sector's recovery.

“Home and apartment construction continued growing strongly while public construction, particularly for highways, has also advanced,” said Ken Simonson, the association's chief economist. “But spending on most private nonresidential categories has stalled or turned negative in the past several months. Contractors still say they are very busy now but uncertainty over the economy may mean new projects dry up.”

Construction spending in December totaled $1.117 trillion at a seasonally adjusted annual rate, less than 0.1% higher than the downwardly revised November total and 8.2% higher than in December 2014, Simonson said. For 2015 as a whole, spending totaled $1.097 trillion, an increase of 10.5% from 2014 and the highest annual total since 2007 before adjusting for inflation. But the December rate was only 0.2% higher than in July, indicating construction leveled off in the second half of 2015, he added.

Private residential spending increased 0.9% for the month and 8.1% compared to December 2014. Spending on multifamily residential construction jumped 2.7% for the month and 12% higher year-over-year, while single-family spending rose 1.0% and 8.7%, respectively.

Private nonresidential construction spending fell 2.1% for the month but rose 11.8% from a year earlier. Simonson observed that the total slumped to the lowest rate since April 2015 although full-year spending exceeded 2014 totals for every category except power and energy construction.

Public construction spending increased 1.9% from a month before and 3.9% from 12 months earlier. Of the two biggest public categories, highway and street construction soared 9.4% for the month and 12% year-over-year, while spending on educational facilities dipped 0.5% for the month but posted a 9.4% year-over-year gain.

Association officials said that the increase in public sector construction spending most likely reflects recently enacted federal transportation and spending measures. They worried, however, that the economic benefits of the increases public investments could be undermined if private sector demand for nonresidential construction begins to lag. "Instead of boosting the sector's recovery, these new public investments may end up being the difference that keeps many firms in growth mode,” said Stephen E. Sandherr, the association’s chief executive officer.