News

Construction Spending Down in June

0 3020 Market Intelligence

The U.S. Census Bureau reported that total construction spending fell 0.6% in June to $883.9 billion at a seasonally adjusted annual rate (SAAR) following a 1.3% increase in May. Year-to-date not seasonally adjusted (NSA) construction spending was up 5.1% compared to the same period in 2012. Spending for April was revised up by $8.1 billion and for May by $14.5 billion.

Total Construction Spending and its Major Components
The U.S. Census Bureau reported that total construction spending fell 0.6% in June to $883.9 billion at a seasonally adjusted annual rate (SAAR) following a 1.3% increase in May. Year-to-date not seasonally adjusted (NSA) construction spending was up 5.1% compared to the same period in 2012. Spending for April was revised up by $8.1 billion and for May by $14.5 billion.

Nonresidential building construction dropped 1.7% to $286.3 billion (SAAR) in June. Year-to-date spending was down 2.3% (NSA) from the same period in 2012. May construction spending was revised up by $6.3 billion or 2.2% of the previously reported number. That was enough to swing May from a decrease of 1.5% to an increase of 0.7%.

Heavy engineering (non-building) construction spending slipped 0.2% to $259.4 billion (SAAR) in June after essentially no change in May. Year-to-date spending was 2.5% (NSA) lower than the same period in 2012. April spending was revised up $3.5 billion, but May spending was revised down $1.5 billion.

Total residential construction spending, which includes improvements, edged down 0.1% in June to $338.2 billion (SAAR) after jumping 2.8% in May. New residential construction spending, which excludes improvements, fell 1.2% to $201.3 billion after advancing 0.9% in May. Year-to-date NSA total residential construction spending was 20.4% higher and new residential construction was 34.5% higher than the same period in 2012.

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

  Current Monthly (1)
(latest actual values)
3-Month Moving Average Year-to-Date (NSA)
  Apr-13 May-13 Jun-13 Apr-13 May-13 Jun-13 Jan-12 to
Jun-12
Jan-13 to
Jun-13
New Single-family 165.6 166.2 164.8 163.6 165.2 165.5 57.1 76.1
  Month-over-Month % Change 1.0% 0.4% -0.8% 2.5% 1.0% 0.2%    
  Year-over-year % Change (NSA) 36.1% 33.5% 28.3% 35.8% 35.3% 32.4% 15.1% 33.2%
New Multifamily (2) 36.4 37.6 36.5 35.2 36.5 36.9 12.4 17.5
  3.1% 3.3% -3.1% 2.8% 3.6% 1.0%    
  43.2% 44.1% 29.7% 42.7% 43.0% 40.4% 13.2% 40.4%
New Residential (3) 202.0 203.8 201.3 198.8 201.7 202.4 69.6 93.6
  1.3% 0.9% -1.2% 2.5% 1.4% 0.3%    
  37.4% 35.3% 28.6% 37.0% 36.8% 33.5% 14.7% 34.5%
Residential Improvements (4) 127.3 134.5 136.9 127.0 129.2 132.9 58.1 60.1
  1.2% 5.7% 1.7% -1.4% 1.8% 2.8%    
  -2.2% 4.2% 6.2% 0.4% 1.3% 3.0% 3.8% 3.4%
Total Residential (5) (6) 329.3 338.4 338.2 325.8 330.9 335.3 127.7 153.7
  1.3% 2.8% -0.1% 1.0% 1.6% 1.3%    
  18.8% 20.3% 17.9% 20.9% 20.5% 19.0% 9.5% 20.4%
Nonresidential Building 289.1 291.2 286.3 291.7 290.3 288.9 142.5 139.2
  -0.5% 0.7% -1.7% -0.1% -0.5% -0.5%    
  -1.7% -2.0% -5.5% -1.7% -2.1% -3.2% 8.4% -2.3%
Heavy Engineering (Non-Building) 260.0 259.9 259.4 255.0 257.8 259.8 118.5 115.6
  2.6% 0.0% -0.2% 0.9% 1.1% 0.8%    
  2.5% -1.2% -5.5% -2.0% -0.6% -1.7% 7.8% -2.5%
Total (6) 878.4 889.4 883.9 872.5 879.0 883.9 388.8 408.5
  1.1% 1.3% -0.6% 0.6% 0.7% 0.6%    
  6.5% 5.9% 2.6% 5.4% 5.9% 4.9% 8.6% 5.1%

(1) Monthly levels are seasonally adjusted at annual rates (SAAR figures).
(2) New Multifamily = New Private Multifamily + New Public Multifamily - Public Improvements (estimated by Reed Economics)
(3) New Residential = New Single-family + New Multifamily
(4) Residential Improvements include remodeling, renovation and replacement work.
Number also includes Reed Economics estimate of improvements to public housing.
(5) Total Residential = New Single-family + New Multifamily + Residential Improvements.
(6) Total may not equal the sum of its components due to rounding.
Source: Census Bureau, U.S. Department of Commerce.

Total public construction spending was down 1.1% at a seasonally adjusted (SA) rate in June following a slight gain of 0.1% in May. Year-to-date NSA public construction spending was 6.5% lower than the same period in 2012.

Total private construction spending declined 0.4% in after increasing 1.8% in May. Year-to-date NSA private construction spending was 10.8% higher than the same period in 2012.

Public and Private Construction Spending
(billions of U.S. current dollars)

  Monthly Figures (1)
(latest actual values)
3-Month Moving Average Year-to-Date (NSA) Annual
  Apr-13 May-13 Jun-13 Apr-13 May-13 Jun-13 Jan-12 to
Jun-12
Jan-13 to
Jun-13
2010 2011 2012
Private Spending 614.6 625.4 622.8 606.7 614.7 620.9 260.6 288.7 500.6 501.6 577.9
  Month-over-Month % Change 1.7% 1.8% -0.4% 1.0% 1.3% 1.0%          
  Year-over-year % Change (NSA) 11.2% 11.7% 9.3% 10.7% 11.3% 10.7% 14.5% 10.8% -14.9% 0.2% 15.2%
Public Spending 263.8 264.0 261.1 265.8 264.3 263.0 128.2 119.8 304.0 286.4 279.0
  -0.5% 0.1% -1.1% -0.2% -0.5% -0.5%          
  -3.5% -5.6% -10.1% -5.6% -5.1% -6.7% -1.8% -6.5% -3.5% -5.8% -2.6%
   Total Federal Spending 23.7 23.9 23.5 23.6 23.7 23.7 13.5 11.3 31.1 31.7 27.4
  1.0% 0.5% -1.5% -0.8% 0.4% 0.0%          
  -12.4% -13.8% -16.5% -18.4% -16.5% -14.3% -13.0% -16.4% 9.5% 1.7% -13.5%
       Federal Nonresidential
       Spending
22.3 22.4 22.1 22.0 22.1 22.3 12.7 10.6 28.4 29.1 25.8
  2.8% 0.8% -1.3% -0.6% 0.4% 0.7%          
  -12.4% -14.2% -16.1% -19.1% -17.3% -14.3% -10.1% -16.9% 8.5% 2.4% -11.4%
       Federal Residential
       Spending
1.5 1.5 1.4 1.6 1.6 1.4 0.8 0.7 2.7 2.6 1.6
  -20.0% -2.5% -6.0% -3.1% 0.8% -10.4%          
  -12.3% -7.4% -22.1% -6.3% -2.5% -14.2%     21.1% -5.7% -38.2%
   Total State & Local Spending 240.1 240.1 237.6 242.1 240.6 239.3 114.7 108.5 272.8 254.8 251.7
  -0.6% 0.0% -1.1% -0.2% -0.6% -0.6%          
  -2.5% -4.7% -9.5% -3.9% -3.8% -5.9% -0.2% -5.4% -4.8% -6.6% -1.2%
       State & Local
       Nonresidential Spending
235.3 235.4 232.9 237.7 235.9 234.5 112.4 106.4 265.3 248.8 247.0
  -0.7% 0.0% -1.1% -0.3% -0.7% -0.6%          
  -2.6% -5.0% -9.7% -3.9% -3.9% -6.0% 0.5% -5.4% -5.5% -6.2% -0.7%
       State & Local Residential
       Spending
4.8 4.8 4.7 4.5 4.7 4.7 2.3 2.2 7.6 6.0 4.7
  4.5% -0.1% -0.8% 4.5% 4.8% 1.1%          
  1.3% 8.8% -0.5% -5.3% 3.7% 3.0% -27.0% -4.7% 31.3% -21.3% -21.5%

Monthly levels are seasonally adjusted at annual rates (SAAR figures).
Source: Census Bureau, U.S. Department of Commerce.

The Economy
The economy has struggled in the first half of 2013, but is improving. First quarter real (inflation adjusted) gross domestic product (GDP) grew a modest 1.1% (SAAR), then improved to a barely acceptable 1.7% in the second quarter based on a first estimate of growth for the quarter.

Given the overall economy’s slow growth, employment has performed surprisingly well. July nonfarm payroll employment increased by 162,000 jobs (SA) and June employment increased by 188,000 jobs. For the first seven months of the year, employment gains averaged 192,000 jobs per month, compared to an average gain of 183,000 jobs per month for all of 2012.

SA construction employment fell 6,000 jobs in July after increasing by 8,000 jobs in June. However, from January through July, the economy added 82,000 construction jobs. The construction unemployment rate for July was 9.1% (NSA), down from 12.3% in July 2012, and its lowest level since August 2008.

Risks to future economic growth include likely legislative battles over funding federal government operations in the fiscal year starting October 1, 2013, and over raising the federal debt ceiling, which will become an issue sometime in the late fall or early winter. Upon their return from vacation in early September, Congress may have as few as nine legislative days to provide funding for federal government operations.

Counter to these negative forces, there are numerous positive forces propelling economic growth. Among these are historically low interest rates (despite recent rate increases), continuing improvement in the housing market, which has resulted in rising home prices in much of the country, the improved consumer balance sheet (aided by rising home prices), and the need for many companies to increase employment and to increase investment in plant and equipment to meet rising demand.

Risks to the Economy and the Forecast
Major risks to the economy include:

  • Additional, sharp reductions in government spending in the short run
  • Failure to fund federal government operations
  • Federal debt approaches the debt ceiling with no legislation to raise the debt ceiling on the horizon
  • Sovereign debt default by one or more European governments
  • One or more European governments abandon the euro
  • A sudden, significant increase in oil prices for a prolonged period

If any one of these events occurs, economic growth will be reduced and the probability of recession will be increased. The result will also be lower construction spending than currently forecast by Reed.

The Forecast
The Reed forecast assumes that the above risks are avoided and that overall economic growth improves modestly. Total construction spending is forecast to increase 3.9% this year due to continued strong growth in new residential construction, and to grow 7.9% in 2014 as nonresidential construction improves and residential construction continues to grow. The forecast assumes that nonresidential building construction is near the end of its retrenchment and will be picking up steam, rising over the remainder of this year and throughout next year.

Heavy engineering (non-building) construction is generally holding its own and will soon return to the growth path, continuing to expand through next year and beyond. The main impediment to stronger performance in this sector is limited public funding from the federal government on down to the local level. However, there are signs that the purse strings are beginning to loosen, if only a bit, in some parts of the country as new infrastructure plans are being unveiled and old plans are being revived.

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

  Actual Forecast
  2009 2010 2011 2012 2013 2014
New Single-family 105.3 112.6 108.2 132.0 165.9 187.7
   Year-over-year % Change -43.3% 6.9% -3.9% 22.0% 25.7% 13.1%
New Multifamily (1) 35.9 24.1 22.7 27.8 36.3 38.6
-30.0% -32.9% -5.7% 22.6% 30.5% 6.3%
New Residential (2) 141.2 136.7 130.9 159.9 202.2 226.3
  -40.4% -3.2% -4.2% 22.1% 26.5% 11.9%
Residential Improvements (3) 112.7 112.5 121.8 126.7 135.6 151.2
-6.6% -0.2% 8.3% 4.0% 7.1% 11.5%
Total Residential (4) (5) 253.9 249.1 252.7 286.5 337.8 377.5
-29.0% -1.9% 1.4% 13.4% 17.9% 11.7%
Nonresidential Building 375.7 290.4 284.0 298.5 291.4 304.8
-14.2% -22.7% -2.2% 5.1% -2.4% 4.6%
Heavy Engineering (Non-Building) 273.5 265.0 251.3 272.0 261.1 278.5
  0.5% -3.1% -5.2% 8.2% -4.0% 6.7%
Total (5) 903.2 804.6 788.0140 856.953 890.2 960.7
-15.4% -10.9% -2.1% 8.7% 3.9% 7.9%

(1) New Multifamily = New Private Multifamily + New Public Multifamily - Public Improvements
(estimated by Reed Economics)
(2) New Residential = New Single-family + New Multifamily
(3) Residential Improvements include remodeling, renovation and replacement work.
Number also includes Reed Economics estimate of improvements to public housing.
(4) Total Residential = New Single-family + New Multifamily + Residential Improvements.
(5) 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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