ABC - Spending: March 2011

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SPENDING: MARCH 2011

March 1, 2011

Nonresidential Construction Spending Plummets 6.9 Percent in January

Summary

In a further sign that the nation’s builders continue to struggle after the recession, private nonresidential construction spending fell 6.9 percent in January, according to the March 1 report by the U.S. Commerce Department. Year-over-year, private nonresidential construction spending is down 13.2 percent. Total nonresidential construction spending – which includes both privately and publicly financed construction – was down 3.3 percent in January and 5.3 percent lower from the same time last year, and now stands at $536.7 billion (see graph below).

Those subsectors posting the largest monthly percentage losses in spending include lodging, down 20.2 percent; power, down 10.9 percent; health care, down 6.4 percent; amusement and recreation, down 6.2 percent; and office, down 5.2 percent. The subsectors with the largest losses year-over-year continue to be lodging, down 44.9 percent; manufacturing, down 25.5 percent; and office construction, down 22.6 percent.

Five of the sixteen nonresidential construction sectors still managed to post increases for the month including conservation and development, up 5.5 percent; public safety, up 4.4 percent; water supply construction, up 2.3 percent; and transportation, up 1.2 percent. Six subsectors were higher from the same time last year including water supply, up 18 percent; conservation and development, up 14.6 percent; highway and street, up 11.3 percent; transportation, up 8.2 percent; and power, up 5.2 percent.

Public nonresidential construction spending was flat for the month and up 2.5 percent from January 2010. Residential construction spending surged 5.1 percent for the month, but was still down 7 percent from the same time last year. Total construction spending – which includes both nonresidential and residential – was down 0.7 percent from December 2010 and 5.9 percent lower from one year ago.

Analysis

“One could simply disregard January’s construction performance as a reflection of meteorological rather than economic phenomena,” said Associated Builders and Contractors Chief Economist Anirban Basu. “It was cold and snowy, and it is likely that weather played a role in suppressing overall activity. Further, the construction employment data from January, released early last month, also appear to support this notion.

“While the nation’s bad weather explains part of the situation, it’s clear that economics was also at play,” said Basu. “Remarkably, total construction spending in America would have expanded in January relative to December had it not been for a sharp decline in energy-related construction. Spending on construction related to this sector fell from $94 billion on a seasonally adjusted annualized basis to $84 billion. That more than offset the gain of $4 billion in spending in the overall U.S. construction sector.

“However, the gain in non-energy-related construction spending was largely driven by residential construction, which experienced an increase in construction spending of more than $12 billion in January on a monthly basis,” Basu said. “Nonresidential construction spending remained negative on a monthly basis even when one excludes the performance of the energy subsector.

“In the final analysis, the January construction spending data supports the notion that the recovery in nonresidential construction has not yet begun,” said Basu. “It is possible that weather has merely delayed this process and that broader economic fundamentals will eventually shine through in the spring. Unfortunately, it is also possible that the economic fundamentals do not yet support recovery in the nation’s construction industry, and that the cold temperatures of January were merely incidental.”

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