Construction Forecasts

News & Analysis

Construction Spending Stumbles in July

10/03/2011 by Bernard M. Markstein, RCD US Chief Economist

Total construction spending fell 1.3% in July, the first monthly decline since the 0.2% fall in March. However, the $10.3 billion decline in July construction spending was more than offset by upward revisions in the May and June numbers—$16.9 billion and $27.5 billion, respectively. Most major categories declined in July with the notable exceptions of retail, highway and street, and water and sewage construction spending. Nonetheless, year-to-date total construction spending was down 3.5% compared to the same period a year ago.

Total public construction spending, especially buildings financed by municipal governments, continued its generally downward path. Starting in October of last year, public construction has fallen in every month except one (this past June). This trend will persist throughout the rest of this year and into next as state and local governments strive to balance their budgets in the face of depressed revenues, exhausted reserves, and the end of federal stimulus funds. The proposal by the administration to invest in infrastructure, if enacted, would offset some of this likely reduction. However, although we expect some funding for infrastructure to be approved, not on the scale that has been proposed.

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

  Current Monthly Year Ago Monthly Year-to-Date (NSA)
  May-11 Jun-11 Jul-11 May-10 Jun-10 Jul-10 Jan-11 to
Jul-11
Jan-10 to
Jul-10
New Residential 126.4 126.2 125.9 142.4 141.9 138.9 66.0 73.6
  Month-over-Month % Change -0.6% -0.2% -0.3% -0.2% -0.3% -2.1%    
  Year-over-year % Change (NSA) -11.3% -10.8% -9.3% 7.4% 7.9% 1.9% -10.3% -3.7%
  3-Month Moving Average 126.9 126.6 126.2          
   (% change vs 3 months prior) -1.9% -1.6% -1.2%          
Residential Improvements* 130.8 133.7 129.9 112.6 109.4 106.9 75.3 69.0
  Month-over-Month % Change 9.1% 2.2% -2.8% -5.9% -2.8% -2.3%    
  Year-over-year % Change (NSA) 17.6% 22.8% 19.3% 6.5% 4.4% -0.3%    
  3-Month Moving Average 119.8 128.1 131.4          
   (% change vs 3 months prior) 5.4% 13.2% 15.3%          
Nonresidential Building 272.2 279.3 273.9 291.0 291.7 285.5 153.8 168.6
  Month-over-Month % Change 1.9% 2.6% -2.0% -1.8% 0.3% -2.2%    
  Year-over-year % Change (NSA) -6.0% -3.7% -5.0% -27.3% -24.9% -24.1% -8.8% -26.8%
  3-Month Moving Average 269.2 272.9 275.1          
   (% change vs 3 months prior) 1.9% 3.2% 3.5%          
Heavy Engineering (Non-Building) 258.0 260.6 259.9 265.3 267.4 257.7 140.5 140.0
  Month-over-Month % Change 1.5% 1.0% -0.3% 1.6% 0.8% -3.6%    
  Year-over-year % Change (NSA) -1.7% -2.8% -0.7% -2.6% -2.6% -8.0% 0.4% -6.5%
  3-Month Moving Average 256.8 257.6 259.5          
   (% change vs 3 months prior) -3.4% -0.9% 0.8%          
Total 787.4 799.8 789.5 811.3 810.4 789.0 435.5 451.2
  Month-over-Month % Change 2.5% 1.6% -1.3% -1.0% -0.1% -2.6%    
  Year-over-year % Change (NSA) -1.8% -0.6% -0.5% -10.8% -9.8% -12.1% -3.5% -13.5%
  3-Month Moving Average 772.7 785.1 792.2          
   (% change vs 3 months prior) 0.0% 2.5% 3.6%          

Monthly levels are seasonally adjusted at annual rates (SAAR figures).
*Residential Improvements include remodeling, renovation and replacement work.
Number also includes RCD estimate of improvements to public housing.
Source: Census Bureau, U.S. Department of Commerce.
Forecast: Reed Construction Data.

Reed Construction Data projects a 3.1% decline in total construction spending this year as the national economy continues to struggle through a period of slow growth amid problems in the Euro zone, uncertainty among U.S. businesses, and low levels of confidence among consumers. Still, some recent data, such as strong durable goods orders, suggest that the United States will avoid a recession. Further, the Federal Reserve’s Operation Twist, which seeks to lower long-term interest rates, will be a mild positive for the economy and for construction spending (see Operation Twist). Assuming no recession, the RCD forecast is for total construction spending to increase 3.7% in 2012 and 7.1% in 2013.

Nonetheless, the risk of recession remains high and our forecast leaves the probability of recession at 30%. To see the RCD alternative recession forecast go to The Impact of a Recession on the Construction Outlook.

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

  Actual Forecast
  2008 2009 2010 2011 2012 2013
New Residential 237.0 141.2 136.2 127.4 129.0 138.2
   Year-over-year % Change -33.1% -40.4% -3.5% -6.5% 1.3% 7.2%
Residential Improvements* 120.7 112.7 112.5 119.8 123.3 128.8
-13.5% -6.6% -0.2% 6.5% 2.9% 4.5%
Nonresidential Building 437.7 375.7 288.9 270.6 279.5 302.4
8.4% -14.2% -23.1% -6.3% 3.3% 8.2%
Heavy Engineering (Non-Builidng) 272.1 273.5 266.0 260.9 275.6 294.9
  9.7% 0.5% -2.8% -1.9% 5.7% 7.0%
Total 1067.6 903.2 803.6 778.6 807.4 864.3
-7.4% -15.4% -11.0% -3.1% 3.7% 7.1%

*Residential Improvements include remodeling, renovation and replacement work.
Number also includes RCD estimate of improvements to public housing.
Source: Census Bureau, U.S. Department of Commerce.
Forecast: Reed Construction Data.


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