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Construction Activity Inches Upward

Forecasts & Statistics

Both AGC and remodeling association report increases in activity.

CDR Staff November 6, 2012

Construction spending in September climbed to a nearly three-year high, according to an analysis of new federal data released by the Associated General Contractors of America (AGC), Washington, D.C. September’s spending, at an annualized rate of $852 billion, reflected increased spending on houses, apartments and private non-residential projects, which outweighed a continuing downturn in public construction, according to the AGC.

“It is heartening to see the growth in total spending, but the progress remains fragile and fragmentary,” says Ken Simonson, AGC chief economist, noting that construction spending had dipped the previous month and that spending in several categories remains lower than in September 2011. “In the wake of the massive losses from this week’s storm [Hurricane Sandy], many construction priorities will be reordered, but overall private and public spending patterns are likely to stick unless federal and state lawmakers devote more funds to construction.”

On the same day, the National Association of the Remodeling Industry’s (NARI), Des Plaines, Ill., said its third-quarter Remodeling Business Pulse data of current and future remodeling business conditions is positive overall, with mixed sentiment about the future. The Hurricane Sandy-related developments are likely to affect the remodeling industry on the East coast in the last quarter of 2012 as homeowners start to rebuild, says NARI.

Data gathered in September shows remodelers are currently experiencing a positive business climate, in fact, at the highest position of the year and up by 2.5 percent since the second quarter of 2012. “Overall, NARI members are experiencing an upswing; however, the future paints a more mixed picture,” says Tom O’Grady, chair of NARI’s Strategic Planning & Research Committee and president of O’Grady Builders, Drexel Hill, Pa. “Hurricane Sandy’s destruction will likely spur more activity on the East coast.”

The AGC’s Simonson says total construction spending rose 0.6 percent for the month and 7.8 percent from September 2011 to September 2012, bringing the total to the highest level since October 2009. Private residential spending accelerated, increasing by 2.8 percent compared with August and 21 percent during the past 12 months. Private non-residential construction, however, inched down 0.1 percent for the month, although it remains up 8.8 percent for the year. Public construction shrank 0.8 percent in September and is down 4.2 percent year-over-year.

New multi-family construction rose 1.3 percent for the month and is up 49 percent compared to September 2011. Improvements to existing residential structures—a category likely to get a large boost from storm reconstruction—climbed 2.0 percent in September and 12 percent over the year, according to AGC.

Among private non-residential categories, the largest—power construction, which includes oil, gas and other energy projects—rose 1.1 percent for the month and 20 percent over 12 months ago. Manufacturing construction was up 3.8 percent in September and 1.3 percent year-over-year. Commercial construction, comprising retail, warehouse and farm structures, dropped 3.8 percent in September but posted a 12-month gain of 4.4 percent.

Public construction fell for the third straight month, with declines in the two dominant categories. Highway and street construction spending decreased 1.6 percent in September and 2.4 percent year-over-year, while educational construction spending slipped 0.8 percent and 6.9 percent, respectively.

According to NARI, a majority of its members report feeling positive about all four business confidence indication areas: inquiries, requests for bids, bid conversions and the value of jobs sold.

“Pent-up demand continues to be a huge contributor to home improvement activity, particularly [for] those who are choosing to stay in homes longer term,” O’Grady says. This long-term mentality is driving an expanding market in universal design and energy-efficient projects, but also shrinking a project’s size and cost.

Additionally, increases in housing prices, affordability and low interest rates are sparking some activity in the home sales market, which often leads to remodeling projects. This trend is in position to become a possible significant driver in 2013. Difficulties in obtaining financing continue to cast a shadow over significant growth for this trend, NARI members report.

NARI refers to itself as a trade association dedicated solely to the remodeling industry. More information about the association, which represents 7,000 member companies nationwide, can be found at www.NARI.org.
 

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