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Nonresidential Building Construction Spending Down in September

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Nonresidential building construction spending fell 1.4% at a seasonally adjusted (SA) rate in September after eking out a 0.2% gain in August. August’s spending was revised up $2.2 billion or 0.7% of the previously reported amount, turning a 1.2% decline into a small increase. Meanwhile, not seasonally adjusted (NSA) year-to-date spending was 6.4% higher than the same period in 2011.

Nonresidential building construction spending fell 1.4% at a seasonally adjusted (SA) rate in September after eking out a 0.2% gain in August. August’s spending was revised up $2.2 billion or 0.7% of the previously reported amount, turning a 1.2% decline into a small increase. Meanwhile, not seasonally adjusted (NSA) year-to-date spending was 6.4% higher than the same period in 2011.

“For lease” private projects spending plunged 3.4% (SA) in September after jumping 2.1% in August. Year-to-date for lease spending increased 8.1% since last year. Lodging construction spending dropped 2.7% in September after declining 0.4% in August. Office construction spending fell 2.1% in September after advancing 2.1% in August. September retail construction spending plummeted 4.5% after increasing a healthy 2.8% in August. On a year-to-date basis as of September, lodging spending was 25.5% higher, office construction spending was 3.4% higher, and retail construction spending was 8.4% higher compared to the same period last year.

September construction spending for institutional projects declined 1.7% after slipping 0.1% in August. On a year-to-date basis, spending was up 1.5% from the same period in 2011. Only one category in this group increased in September — amusement/recreation rose a strong 2.8%. However, only two of the institutional project categories were down on a year-to-date basis, religious construction spending (-8.9%) and amusement/recreation construction spending (-1.4%).

Manufacturing construction spending posted its first increase in three months, up 3.5% in September following a 2.6% drop in August. In spite of the three monthly declines, year-to-date spending was 21.9% higher than the same period last year. The turnaround in manufacturing activity is likely to prove to be more than a one month blip. Reed Construction Data manufacturing starts were significantly higher in both September and October, indicting further increases for the category.

U.S. Nonresidential Construction
(billions of U.S. current dollars)

  Monthly Figures (1)
(latest actual values)
3-Month Moving Average Year-to-Date (NSA)
  Jul-12 Aug-12 Sep-12 Jul-12 Aug-12 Sep-12 Jan-11 to
Sep-11
Jan-12 to
Sep-12
For Lease 93.7 95.7 92.5 94.1 94.5 94.0 64.9 70.1
  Month-over-Month
  % Change
-0.2% 2.1% -3.4% 0.2% 0.4% -0.5%    
  Year-over-year
  % Change (NSA)
6.3% 6.4% 2.0%       -4.5% 8.1%
     Lodging 11.6 11.5 11.2 11.3 11.5 11.5 6.5 8.2
  1.7% -0.4% -2.7% 1.7% 1.7% -0.5%    
  35.7% 30.0% 25.1%       -28.1% 25.5%
     Office 35.9 36.6 35.8 36.0 36.1 36.1 26.0 26.9
  -0.2% 2.1% -2.1% 0.3% 0.5% -0.1%    
  5.1% 5.8% -1.4%       -10.1% 3.4%
     Commercial
     (mainly retail)
46.3 47.5 45.4 46.8 46.8 46.4 32.4 35.1
  -0.7% 2.8% -4.5% -0.2% 0.0% -0.8%    
  2.1% 2.7% 0.4%       8.0% 8.4%
Institutional 156.8 156.6 154.0 156.8 157.0 155.8 116.8 118.5
  -0.6% -0.1% -1.7% 0.3% 0.1% -0.8%    
  1.8% 0.2% -2.7%       -5.5% 1.5%
     Health Care 40.9 42.7 40.6 41.1 41.5 41.4 29.7 30.7
  -0.3% 4.3% -4.9% 0.0% 1.1% -0.3%    
  1.0% 6.3% 0.1%       1.3% 3.4%
     Education 86.0 84.4 83.8 85.7 85.8 84.7 64.3 65.4
  -1.1% -1.8% -0.7% 0.6% 0.2% -1.2%    
  2.2% -2.1% -3.9%       -6.8% 1.7%
     Religious 3.9 3.8 3.6 3.9 3.9 3.8 3.2 2.9
  1.8% -3.5% -6.1% 0.1% -0.3% -2.6%    
  -4.8% -14.9% -16.2%       -19.4% -8.9%
     Public Safety 10.0 10.1 10.0 10.3 10.1 10.0 7.6 7.7
  -1.6% 1.0% -1.3% -0.9% -1.7% -0.6%    
  0.8% -7.0% -4.1%       -12.0% 2.0%
     Amusement/
     Recreation
16.0 15.6 16.0 16.0 15.8 15.9 12.0 11.9
  1.2% -2.3% 2.8% 0.9% -1.2% 0.5%    
  -0.9% -1.1% -2.4%       -5.5% -1.4%
Manufacturing 47.6 46.3 48.0 49.1 47.7 47.3 29.0 35.4
  -3.3% -2.6% 3.5% -0.7% -2.9% -0.8%    
  12.5% 1.9% 0.3%       -8.0% 21.9%
Total (2) 298.1 298.6 294.4 300.0 299.2 297.0 210.6 224.0
  -0.9% 0.2% -1.4% 0.1% -0.3% -0.7%    
  4.4% 1.8% -1.0%       -5.6% 6.4%

(1) Monthly figures are seasonally adjusted at annual rates (SAAR figures).
(2) Total may not equal the sum of its components due to rounding.
Source: Census Bureau, U.S. Department of Commerce. Calculations: Reed Construction Data

The Forecast
Possible debt default by one or more European countries, dissolution of the euro, the fiscal cliff, the approaching federal debt ceiling, and a sustained spike in energy prices all represent risks to the forecast for nonresidential construction spending. Nonetheless, Reed Economics expects that these outcomes will not occur and that the forecast for moderate growth of the United States economy will prevail.

The result will be increased employment and greater business investment driven by higher demand, which will be supported by continued low long-term interest rates. As a result, nonresidential construction spending is forecast to increase 5.2% in 2012, 4.2% in 2013, and 8.4% in 2014.

U.S. Nonresidential Construction
(billions of U.S. current dollars)

  Actual Forecast
  2009 2010 2011 2012 2013 2014
For Lease 131.5 88.9 87.1 93.6 98.7 106.7
   Year-over-year % Change -31.0% -32.4% -2.1% 7.5% 5.4% 8.1%
     Lodging 25.5 11.6 8.9 11.1 12.5 13.8
-28.8% -54.4% -23.7% 25.0% 12.4% 10.3%
     Office 51.9 37.9 34.6 35.9 38.1 41.1
  -24.3% -27.1% -8.5% 3.5% 6.1% 8.1%
     Commercial (mainly retail) 54.1 39.5 43.6 46.6 48.2 51.8
-37.3% -27.0% 10.4% 7.1% 3.3% 7.6%
Institutional 187.4 161.1 154.7 156.3 159.5 170.2
  -3.4% -14.0% -4.0% 1.1% 2.0% 6.7%
     Health Care 44.8 39.3 39.7 41.3 43.9 47.7
-4.4% -12.3% 0.9% 3.9% 6.5% 8.7%
     Education 103.2 88.4 84.3 85.0 85.3 90.4
  -1.6% -14.3% -4.6% 0.8% 0.3% 6.0%
     Religious 6.2 5.3 4.2 3.8 3.7 3.9
-14.3% -14.6% -20.1% -9.0% -4.4% 4.9%
     Public Safety 13.8 11.2 10.2 10.3 10.2 10.6
5.4% -19.1% -8.2% 0.7% -0.9% 3.6%
     Amusement/Recreation 19.4 16.9 16.2 15.9 16.4 17.6
-11.1% -12.7% -4.5% -1.5% 3.2% 7.3%
Manufacturing 56.8 40.4 41.4 48.0 52.1 59.5
  6.8% -29.0% 2.6% 15.9% 8.6% 14.2%
Total (1) 375.7 290.4 283.1 297.9 310.3 336.4
-14.2% -22.7% -2.5% 5.2% 4.2% 8.4%

(1) Total may not equal the sum of its components due to rounding.
Source: Census Bureau, U.S. Department of Commerce. Forecast: Reed Construction Data.

by Bernie Markstein

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