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Biggest Gain in Construction Since December 2009 Reported

Monday, July 2, 2012

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Construction spending in May reached levels not seen since December 2009 as widespread gains in private nonresidential and residential construction offset a continuing downturn in the public sector, the Associated General Contractors of America (AGC) reported in an analysis of Census Bureau data.

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The Associated General Contractors of America report that construction spending in private construction is helping to offset the downturn in public projects.

Association officials said they expect the disparity between private and public construction to persist, although enactment of a federal highway and transit bill “will cushion the decline in public spending.”

“It is encouraging to see such a broad-based pickup in private construction,” said the association’s chief economist, Ken Simonson.

Private Construction Pickup

Simonson said private nonresidential spending rose for the third month in a row in May and was 19% higher than in May 2011.

Residential construction increased 3% for the month and 8% year-over-year, with new multifamily construction rising 6% and 50%, respectively, and single-family homebuilding up 2% and 15%.

Simonson said four private nonresidential categories each posted 12-month spending increases of more than 25%, including:

• power and energy construction, 35%;

• hotels, 29% ;

• educational and manufacturing, both at 27%.

He said improvements in year-over-year totals also occurred for private transportation such as trucking and rail facilities, up 17%; healthcare and commercial (retail, warehouse and farm), 11% each; and office construction, 7%.

“Based on the number and variety of projects that have been announced in recent months, I expect the private nonresidential sector to keep posting hefty gains for the rest of 2012 and beyond,” Simonson added.

“Apartment construction seems sure to remain strong as well. Single-family homebuilding is not as solid but has apparently passed its low point. Together, these categories should mean that total construction spending in 2012 will be positive for the year for the first time since 2007 despite ongoing weakness in public construction.”

Public Construction Slump

Public construction, meanwhile, slumped for the fifth consecutive month, falling 4% below the May 2011 level, Simonson said.

He said the largest public category, highway and street construction, edged down 0.5% from April, but moved up 2% year-over-year, while the second-largest segment, educational construction, fell 3% and 7%, respectively.

Association officials said the enactment of a federal highway and transportation bill that slightly increases spending over the next 27 months will keep public construction from falling further. But they urged Congress to include more funding for essential water and wastewater projects.

“Getting a highway and transit bill passed is a great first step,” said Stephen E. Sandherr, the association’s CEO. “Next, Congress should focus on keeping other forms of infrastructure from falling behind while enacting measures to support broader economic growth.”