ABC - Spending- August 2011

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SPENDING- AUGUST 2011

August 1, 2011

Private Nonresidential Construction Spending Rises 1.8 Percent in June

Summary

For the fourth consecutive month, private nonresidential construction has increased, up 1.8 percent in June, according to the August 1 report by the U.S. Census Bureau. However, spending in this sector is down 1.3 percent compared to one year ago. Total nonresidential construction spending – which includes both privately and publicly financed construction – was $528.4 billion in June, up 0.5 percent for the month, but down 5.5 percent year-over-year (see graph below).

Eleven of the sixteen nonresidential construction subsectors posted increases for the month, including manufacturing, up 4.1 percent; communication, up 3.9 percent; power, up 3.1 percent; and health care, up 2.4 percent. Four subsectors have had increases in construction spending from the same time last year. They are power, up 13.8 percent; commercial, up 4.2 percent; communication, up 2.7 percent; and health care, up 2.4 percent.

Five nonresidential construction subsectors posted decreases for the month, including conservation and development, down 6.6 percent; educational, down 3.2 percent; amusement and recreation, down 3.1 percent; highway and street, down 1.6 percent; and religious construction, down 1.4 percent. Of the twelve subsectors experiencing decreases in spending year-over-year, they are religious, down 25.7 percent; lodging, down 24.3 percent; and water supply, down 14.3 percent.

Public nonresidential construction spending slipped 0.7 percent for the month and is down 9.2 percent compared to the same time last year. Residential construction spending fell 0.3 percent in June and is down 2.1 percent over the last twelve months. Total construction spending – which includes residential and nonresidential construction – inched up 0.2 percent for the month, but was down 4.7 percent from June 2010.

Analysis

“Some may be surprised with today’s report that construction spending edged higher in June given the overall weakness of the U.S. economy in recent months,” said Associated Builders and Contractors Chief Economist Anirban Basu.

“It is important to note in this context that construction activity remains a lagging indicator of overall economic activity, which implies that the modest uptick in construction spending in June was a reflection of economic momentum that pre-existed the recent soft patch,” Basu said.

“With the softness in economic activity persisting, perhaps through the balance of this year and beyond, the ongoing increase in total nonresidential construction spending is unlikely to last,” said Basu.

“With government support for construction on the wane, the hope has been that a privately financed recovery would begin in earnest,” Basu said. “To a certain extent, that has occurred, with manufacturing, communication, power and healthcare construction leading the way.

“Should the nation’s economic recovery pick up steam later this year, construction will again be positioned for an increase in spending, but for now the outlook is not particularly promising,” said Basu.

For more information, contact Gerry Fritz, fritz@abc.org