Nonresidential Construction Boosts Total Spending

Robust gains in public and private nonresidential construction spending overpowered the continuing slump in April, says Ken Simonson, chief economist for the Associated General Contractors of America (AGC), commenting on the June 29 construction spending report from the U.S. Department of Commerce.

“Total construction spending climbed 0.9 percent in May, seasonally adjusted, as a 2.5 percent uptick in nonresidential spending more than offset a decline of 0.8 percent in residential construction,” Simonson notes. For the first five months of 2007, total construction was down 3.9 percent compared to the same period last year. During that time, nonresidential construction increased 15 percent, while residential construction fell 18 percent.

Simonson says, “ On the private side, the biggest year-to-date growth has been in lodging construction, up 60 percent; offices, 26 percent; hospitals, 22 percent; and multi-retail—‘ big box’ and other general merchandise stores, shopping centers and malls—20 percent. I expect private nonresidential construction to keep up the pace for the second half of 2007 and probably right through 2008 as well.”

Public construction rose 11 percent year-to-date. “The two big public categories—highways and streets, and education—accounted for just over half the public total,” Simonson says. “Highway construction was 8.2 percent year-to-date, and education was up 9.9 percent. Every public category was up in May and in the first five months of 2007 combined. But I foresee cutbacks later this year as state and local revenues begin to train budgeted amounts. For instance, Virginia’s governor has already ordered state agencies to slow spending as real estate and sales taxes fell short of expectations.”

“Private residential spending remains a disaster,” Simonson continues. “Single-family construction skidded another 1.4 percent in May and 27 percent year-to-date. Multi-family construction and residential improvements were roughly flat for the month and the first five months combined. I don’t foresee an improvement in these numbers before the second quarter of 2008.”

More information is available at www.agc.org.