Total Construction Spending and its Major Components
The U.S. Census Bureau reported that total construction spending edged up 0.1% in March after falling 1.4% in February. March total construction spending was $808.1 billion at a seasonally adjusted annual rate (SAAR). Year-to-date not seasonally adjusted (NSA) construction spending was up 6.7% from the same period last year.
Nonresidential building construction slipped 0.1% in March to $288.1 billion (SAAR), following a 0.7% decline in February. However, on a year-to-date basis NSA spending was up 9.6% for the same period a year ago.
Heavy engineering (non-building) construction spending fell 0.3% to $268.8 billion (SAAR), its third consecutive decline, following a 1.4% drop in February. On a year-to-date basis, spending was up 4.8% NSA from the same period in 2011.
Total residential construction spending, which includes improvements, was up 0.7% to $251.2 billion after falling 2.2% in February. New residential construction spending, which excludes improvements, jumped 2.8% after declining 0.8% in February. Total residential construction spending was up 5.2% year-to-date compared to the same period a year earlier, while new residential construction was up 8.4%.
Total public construction spending fell 1.1%, its fourth consecutive monthly decline, after slipping 0.3% in February. On a year-to-date basis, spending was down 2.6% from a year ago. The outlook for public spending is for further declines as local governments struggle to balance their budgets and as Washington strives to reduce the federal government’s deficit. Total private construction spending rose 0.7% following February’s 1.9% fall. On a year-to-date basis, private construction spending still advanced 11.8% over the same period last year.
U.S. Total Construction Spending
|Current Monthly||3-Month Moving Average||Year-to-Date (NSA)|
|Month-over-Month % Change||3.0%||-1.3%||3.8%||2.0%||1.1%||1.8%|
|Year-over-year % Change (NSA)||5.8%||9.1%||10.2%||-7.0%||8.4%|
|New Multifamily (1)||23.0||23.4||23.0||22.9||23.1||23.1||5.0||5.4|
|New Residential (2)||137.1||136.0||139.9||134.1||135.6||137.7||27.4||29.7|
|Residential Improvements (3)||117.9||113.5||111.3||119.8||117.2||114.2||21.9||22.2|
|Total Residential (4) (5)||255.1||249.5||251.2||253.9||252.7||251.9||49.3||51.9|
|Heavy Engineering (Non-Building)||273.3||269.5||268.8||277.1||274.7||270.5||51.8||54.3|
Monthly levels are seasonally adjusted at annual rates (SAAR figures).
Recent economic reports have shown weakness that may be due to an unwinding of the effects of the unusually mild winter and warm early spring weather in much of the country, which undoubtedly pulled some activity forward and may have led to some overstatement of the data due to the seasonal adjustment process. Nonfarm payroll employment increased a disappointing 115,000 in April (SAAR). However, February and March employment numbers were revised up a total of 53,000 for the two months. The unemployment rate in April fell from 8.2% to 8.1%, but that was due more to a reduction in the labor force as discouraged workers ceased looking for work and therefore were not counted as part of the workforce than from rising employment.
Nonetheless, the economy appears to be on an acceptable growth path, turning in respectable if not spectacular numbers — first quarter real gross domestic product (GDP) grew 2.2% (SAAR).
Risks to the Economy and the Forecast
Europe continues to muddle through its problems, with Spain and Greece the current focus, complicated by the French election results. Although Europe is able to work through its immediate problems as they crop up, the failure to provide any solid long-term solutions means that developments in Europe remain a risk to the U.S. economy. The European Union and the euro are likely to survive, although that is not a certainty. Greece is clearly the weakest link and most likely to leave/be booted from the monetary union. Meanwhile, several European countries already are in recession. A deep European recession would be a drag on U.S. growth, but it is a default on European debt that carries the greatest risk due to the impact on the U.S. and world financial markets.
Higher energy prices are another risk to the health of the U.S. and world economies, though that risk has fallen of late. Oil prices have fallen recently, resulting in price declines in energy and some related prices. Nevertheless, a prolonged, spike in oil prices (higher than recently experienced) would hurt consumers and adversely affect economic growth, possibly pushing the U.S. into recession.
Political paralysis in Washington is another major risk for the U.S. economy. The inability to reach a compromise and move forward on even the most basic issues such as annual funding bills is disheartening at best. The approaching election is further complicating any reasonable action. The Bush tax cuts are set to expire at the end of this year. Presumably they will be extended in some form. But if gridlock prevents some version of a reasonable extension of current tax law, the fiscal drag would be enough to precipitate a new recession. Even before that, the U.S. is likely to face the need to raise the federal debt ceiling again, another opportunity for Washington to muck things up and create a crisis where none need be. Our forecast assumes that the worst case scenarios will not come to pass, but the risk that they might remains.
Assuming no recession, the Reed Construction Data forecast is for total construction spending to increase 3.8% in 2012 and 5.5% in 2013. The forecasted growth rate for 2012 is reduced from last month’s 4.5%. The downward revision for 2012 is largely due to the Census Bureau sharply revising down January and February construction spending numbers for heavy engineering.
U.S. Total Construction Spending
|Year-over-year % Change||-39.1%||-43.3%||6.9%||-5.2%||10.6%||7.4%|
|New Multifamily (1)||51.2||35.9||23.7||22.1||23.9||26.8|
|New Residential (2)||237.0||141.2||136.2||128.9||142.0||153.6|
|Residential Improvements (3)||120.7||112.7||112.5||116.6||113.9||118.1|
|Total Residential (4) (5)||357.7||253.9||248.7||245.5||255.9||271.8|
|Heavy Engineering (Non-Builidng)||272.1||273.5||266.0||266.2||271.5||277.9|
(1) New Multifamily = New Private Multifamily + New Public Multifamily - Public Improvements