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Construction spending drops 0.2% in May

0 226 Market Intelligence

Total construction spending fell 0.2% in May after the outsized 2.3% rise in April. Spending is now 3.2% above the February low point for this cycle but is down 31% from the peak spending level 50 months ago. May’s 35,000 construction layoffs had signed a larger decline in construction spending. Revisions may yet validate this. Monthly construction spending totals for the rest of the year are expected to be near the May total with a small post-tax credit dip likely during the summer. From month to month, construction spending is as likely to rise as it is to fall.

Total construction spending fell 0.2% in May after the outsized 2.3% rise in April. Spending is now 3.2% above the February low point for this cycle but is down 31% from the peak spending level 50 months ago. May’s 35,000 construction layoffs had signed a larger decline in construction spending. Revisions may yet validate this. Monthly construction spending totals for the rest of the year are expected to be near the May total with a small post-tax credit dip likely during the summer. From month to month, construction spending is as likely to rise as it is to fall.

The overall Reed Construction Data spending forecast is largely unchanged from last month. But it begins from a lower base due to the downward spending revisions in the annual revision of the construction spending data series. The major revision was a huge cut in the estimate for the manufacturing sector. This reverses previous major upward revisions. Manufacturing construction spending is difficult to estimate since a large share is not publicly bid and some is not bid at all but done by owners’ own employees. Generally, the downward revision in manufacturing reflects less spending for energy related projects.

The annual revision also reduced residential spending slightly and made a more significant cut in spending for developer financed buildings. The stimulus plan is probably responsible for small upward revisions on the spending estimates for institutional buildings and heavy construction.

.The Reed Construction Data spending forecast projects an 8.8%% drop in 2010 and then a 5.9% recovery in 2011.

U.S. Total Construction Spending
(billions of U.S. current dollars – annual figures)

  Actual Forecast
  2005 2006 2007 2008 2009 2010 2011
New Residential (% change 485.0 476.9 362.3 238.2 141.4 143.8 171.6125
is year vs previous year) 15.0% -1.7% -24.0% -34.2% -40.6% 1.7% 19.3%
Residential Improvements* 131.1 145.9 140.2 120.7 119.3 124.5 127.4
  13.7% 11.2% -3.9% -13.6% -1.1% 0.0% 2.3%
Non-residential Building 301.8 339.3 402.8 437.4 379.7 295.8 312.375
  6.6% 12.4% 18.7% 8.6% -13.2% -22.1% 5.6%
Non-building 184.3 207.4 247.8 270.9 273.5 269.2 270.8625
   (heavy engineering) 8.8% 12.5% 19.5% 9.3% 1.0% -1.7% 0.6%
Total 1102.2 1169.4 1053.0 1067.2 914.1 833.3 882.25
  11.4% 6.1% -1.4% -7.4% -14.3% -8.8% 5.9%

*Residential Improvements include remodeling, renovation and replacement work.
Actuals: U.S. Census Bureau, Department of Commerce.
Forecasts and table: Reed Construction Data.

by Jim Haughey

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