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Construction Gains, But Will it Last?

Friday, December 6, 2013

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The rollercoaster ride of U.S. construction spending has climbed to a four-and-a-half-year high, but the progress of individual sectors remains mixed, keeping builders cautious about the future.

An “unusual surge” in public construction unexpectedly pushed total U.S. construction spending in October to its highest level since May 2009, despite declines in some markets, the Associated General Contractors of America reports in an analysis of new Census Bureau data.

On the residential side, AGC economists see continued strength in multifamily construction, but a continued struggle in single-family projects.

October Total: $908B

Construction put in place in October was 0.8 percent higher than in September, totaling $908 billion. August and July figures were revised down, below levels that initially exceeded the October estimate. The first 10 months of 2013 totaled 5 percent above the totals for the same period in 2012.

construction spending
AGC

October construction spending totaled $9.8 billionthe highest since May 2009, according to an analysis by the Associated General Contractors of America.

"Nearly every category of public construction increased in October, according to the preliminary Census figures, although for the first 10 months of 2013 combined, public spending continues to lag the 2012 year-to-date total," Ken Simonson, AGC's chief economist, said in a statement.

"Meanwhile, residential spending slipped for the month but still showed strong year-to-date gains, and nonresidential spending remained stuck in neutral," Simonson said.

Breakdown by Sector

Public construction spending was up 3.9 percent for the month, but down by 2.8 percent compared to 2012. The two largest public components were highway and street construction with an increase of 0.6 percent in October and 0.3 percent year-to-date. Educational construction jumped 8.5 percent for the month, but also fell 8.5 percent year-to-date.

Private nonresidential spending dropped down 0.5 percent in October, but increased by 0.8 percent year-to-date. Power, the largest private nonresidential category, including oil and gas and electricity, fell 5.7 percent in October and 5.8 percent year-to-date. The next three biggest categories—manufacturing, commercial (retail, warehouse and farm) and office—saw increases for both time periods, but exact percentages were not provided.

Private residential spending jumped 17 percent for the year to date, but declined 0.6 percent for the month. Although new single-family construction decreased by 0.6 percent in October, it increased by 30 percent in the first 10 months of 2013, compared to the same period of 2012. New multifamily spending saw increases of 2.2 percent for October and 46 percent year-to-date.

"Construction will likely display varied patterns in the next several months," Simonson said. "Multifamily construction will keep burgeoning, but single-family homebuilding may stall. Private nonresidential spending should benefit from more power, energy and manufacturing work. Public construction remains threatened."

Calling on Congress

AGC also called on Congress and the administration to quickly complete the Water Resources Development Act and a new transportation bill to fund repairs to deteriorating highways, bridges and transit infrastructure.

The Water Resources Development Act of 2013 promotes investment in critical water resources infrastructure, accelerates project delivery, and reforms the implementation of Army Corps of Engineers projects. The Senate version (S. 601) passed May 15; the House version (H.R. 3080) passed on Oct. 23. The Senate has since made changes and sent the bill back to the House on Oct. 31.

In June, the U.S. Environmental Protection Agency released the results of its fifth "Drinking Water Infrastructure Needs Survey and Assessment," which found that drinking water infrastructure across the country is rapidly approaching the end of its lifespan and will need more than $384 billion in improvements through 2030.

Associated General Contractors of America
©iStock / tenenit

Nearly every category of public construction increased in October, although total  public spending for the first 10 months of 2013 lagged the same period in 2012, AGC said.

In addition, a new transportation bill must include provisions to aid the nearly depleted federal Highway Trust Fund, the association noted.

"If Congress can act in a bipartisan way on transportation funding as it did on the Water Resources bill, it can avoid a cliff-like drop in highway spending," said Stephen E. Sandherr, AGC's CEO.

Funding's Future

In 2012, President Obama signed into law the federal surface transportation authorization, Moving Ahead for Progress in the 21st Century (MAP-21), which funds highway and transit investments through Sept. 30, 2014.

But AGC says that MAP-21 does not resolve the long-term funding problem. The Highway Trust Fund will have a shortfall of about $8 billion in FY 2015, resulting in a possible 93 percent cut to federal transportation investments that year, the contractors say.

Meanwhile, new legislation proposed Nov. 14 would phase out federal funding of transportation projects and appropriate less and less from the Highway Trust Fund for the federal highway system from 2015 through 2019.

The measure, called the Transportation Empowerment Act (H.R. 3486 and  S.1702), was proposed by Rep. Tom Graves (R-GA) and Sen. Mike Lee (R-UT).

   

Tagged categories: Associated General Contractors; Construction; Economy; Infrastructure; Oil and Gas; Residential Construction; Trends

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