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Construction-Spending Divide: Public, Private Projects on Different Paths

Wednesday, May 2, 2012

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Construction spending inched up in March to an annualized rate of $808 billion, up 0.1% from February and up 6% above year ago levels, the Associated General Contractors of America (AGC) reported in an analysis of Census Bureau data.

The AGC reports that private and public sector demand for construction appears to be heading along two distinct directions.

The overall gains mask divergent trends, however, as public-sector construction activity continues to decline while private-sector demand for new construction continues to strengthen, AGC officials said.

“Private and public sector demand for construction appear to be heading along two distinct directions,” said Ken Simonson, the association’s chief economist. “While it is great to see private-sector activity coming back to life, it is unfortunate to see declining public-sector demand dampen the industry’s overall growth.”

Simonson said private construction activity expanded by 11.5% between March 2011 and March 2012 and by 0.7% from February.

Nonresidential spending was particularly robust, expanding by 15.2% from March 2011 and by 0.7% compared to February.

Simonson said the biggest private nonresidential monthly spending increases were for transportation (up 6.7% for the month) and office projects (up 5.4% for the month), while manufacturing (up 38.6% for the year) and power construction (up 22.1% for the year) experienced the largest annual increases.

He said private residential spending increased by 0.7% compared to February and 7.4% from March 2011. New single-family construction posted a 10.3% year-over-year rise and a 3.8% increase for the month. New multi-family construction was up 23.3% from the previous March but was down 3.1% from February. Spending on residential improvements moved up 2.6% year-over-year but fell 1.9% for the month.

Simonson said public construction spending declined 3.2% in March from a year earlier and 1.1% from February. The two largest public categories showed similar results. Highway and street construction, the largest public category, was down 0.5% year-over-year and fell 0.8% for the month. Educational spending declined by 2.7% from a year earlier after dropping 1.2% from February to March, Simonson said.

Association officials reported that the ongoing declines in public construction spending were “making it difficult to benefit from the growing private-sector construction activity.”

“While Congress appears to finally be making progress on a long-overdue highway and transit bill, the lack of key bills, the winding down of the stimulus and the conclusion of many military-base realignment projects were offsetting growth in private sector activity,” AGC said.