Construction Forecasts

News & Analysis

Nonresidential Building Construction Falls in July

09/25/2012 by Bernard M. Markstein, RCD US Chief Economist

Nonresidential building construction spending dropped 0.7% at a seasonally adjusted (SA) rate in July after slipping 0.1% in June (revised down from the originally reported 0.3% increase). On a year-to-date, not seasonally adjusted (NSA) basis, spending increased 8.4% compared to the same period in 2011.

“For lease” private projects spending fell 0.8% (SA) in July following a 0.1% decline in June. Year-to-date for lease spending increased 9.5% compared to a year ago. July lodging construction spending decreased 0.2% after jumping 3.6% in June. July office construction spending inched up 0.2% after increasing 0.4% in June (revised up from a 0.3% decline) and marking its third consecutive monthly increase. Retail construction spending plunged 1.8% after falling 1.4% in June. On a year-to-date basis, hotel construction spending increased 24.4%, office construction spending 4.1%, and retail construction spending 10.7%.

Construction spending for institutional projects edged down 0.1% in July after decreasing 0.2% in June. On a year-to-date basis, spending was up 2.2% from last year. Three of the categories in this group increased in June—health care (+0.4%), religious (+1.2%), and public safety (+0.7%). On a year-to-date basis, all of the institutional project categories were up over the same period last year except religious and amusement/recreation construction spending, which fell 7.1% and 1.0%, respectively.

Manufacturing construction spending plunged 2.2% in July, ending five consecutive months of increase. Further, June’s reported jump of 3.7% last month was revised down $2.4 billion (4.6% of the original number) to a much tamer increase of 0.5%. Nonetheless, year-to-date spending was up a robust 31.7% compared to last year. We will keep an eye on this measure to see if July was just a temporary blip on the radar screen or an indication of a more serious problem.

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

  Monthly Figures (1)
(latest actual values)
3-Month Moving Average Year-to-Date (NSA)
  May-12 Jun-12 Jul-12 May-12 Jun-12 Jul-12 Jan-10 to
Jul-11
Jan-11 to
Jul-12
For Lease 94.6 94.5 93.7 93.7 94.1 94.3 48.7 53.3
  Month-over-Month
  % Change
1.6% -0.1% -0.8% 1.7% 0.4% 0.2%    
  Year-over-year
  % Change (NSA)
9.3% 5.5% 6.1%       -6.8% 9.5%
     Lodging 11.0 11.3 11.3 11.0 11.1 11.2 5.0 6.3
  -0.6% 3.6% -0.2% 4.1% 0.7% 0.9%    
  27.9% 23.8% 32.6%       -30.3% 24.4%
     Office 36.1 36.3 36.3 35.8 36.0 36.2 19.7 20.5
  1.6% 0.4% 0.2% 1.7% 0.4% 0.7%    
  4.5% 1.5% 6.4%       -11.5% 4.1%
     Commercial
     (mainly retail)
47.5 46.9 46.1 46.9 47.0 46.8 24.0 26.6
  2.0% -1.4% -1.8% 1.2% 0.3% -0.4%    
  9.6% 5.1% 1.2%       5.1% 10.7%
Institutional 155.9 155.6 155.5 155.8 155.6 155.7 87.2 89.1
  0.5% -0.2% -0.1% -0.4% -0.1% 0.1%    
  3.0% -0.4% -0.4%       -6.3% 2.2%
     Health Care 41.3 41.1 41.3 40.8 41.1 41.2 22.6 23.5
  1.0% -0.5% 0.4% 0.2% 0.8% 0.3%    
  6.3% 1.6% 1.9%       1.4% 3.7%
     Education 84.0 84.1 83.9 84.7 84.2 84.0 47.4 48.4
  -0.6% 0.1% -0.3% -0.7% -0.6% -0.3%    
  1.4% -1.3% -1.3%       -8.1% 2.1%
     Religious 3.8 3.9 3.9 3.9 3.9 3.9 2.4 2.2
  -2.5% 1.0% 1.2% -2.2% -1.4% -0.1%    
  -7.9% -4.2% -6.2%       -20.7% -7.1%
     Public Safety 10.6 10.5 10.6 10.5 10.5 10.6 5.6 6.0
  3.4% -1.3% 0.7% -1.0% -0.3% 25.8%    
  5.8% -1.1% 6.7%       -15.1% 6.1%
     Amusement/
     Recreation
16.2 16.1 15.9 15.8 15.9 16.0 9.1 9.0
  3.8% -0.6% -1.1% 0.7% 0.5% 0.7%    
  -3.1% -2.8% -1.1%       -3.5% -1.0%
Manufacturing 50.5 50.8 49.6 49.0 50.0 50.3 20.9 27.5
  3.9% 0.5% -2.2% 2.0% 2.0% 0.7%    
  32.2% 15.4% 18.1%       -15.8% 31.7%
Total (2) 301.1 300.9 298.8 298.4 299.7 300.3 156.9 170.0
  1.4% -0.1% -0.7% 0.7% 0.4% 0.2%    
  8.5% 3.4% 4.2%       -7.8% 8.4%

(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
The major risks to the construction spending forecast consist of the ongoing problems in Europe, the looming expiration of the Bush tax cuts at year’s end, the federal debt approaching the debt ceiling, and drastically higher oil prices for a prolonged period. Despite these risks, Reed Economics assumes the United States avoids a recession.

This month the forecast horizon is extended to 2014. Better U.S. economic growth, increased hiring and investment in new plant and equipment by companies due to higher demand, and continued low long-term interest rates underlie the Reed forecast. The forecast is for nonresidential construction spending to increase 6.2% in 2012, 7.0% in 2013, and 10.2% 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 94.5 101.8 111.8
   Year-over-year % Change -31.0% -32.4% -2.1% 8.5% 7.7% 9.9%
     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 36.2 39.4 43.4
  -24.3% -27.1% -8.5% 4.5% 8.9% 10.1%
     Commercial (mainly retail) 54.1 39.5 43.6 47.1 49.9 54.6
-37.3% -27.0% 10.4% 8.2% 5.7% 9.6%
Institutional 187.4 161.1 154.7 156.6 163.7 177.3
  -3.4% -14.0% -4.0% 1.2% 4.5% 8.3%
     Health Care 44.8 39.3 39.7 41.5 45.3 50.2
-4.4% -12.3% 0.9% 4.5% 9.2% 10.7%
     Education 103.2 88.4 84.3 84.5 87.0 94.0
  -1.6% -14.3% -4.6% 0.2% 2.9% 8.0%
     Religious 6.2 5.3 4.2 3.9 4.0 4.3
-14.3% -14.6% -20.1% -6.8% 2.5% 6.9%
     Public Safety 13.8 11.2 10.2 10.6 10.8 11.2
5.4% -19.1% -8.2% 3.8% 1.7% 3.6%
     Amusement/Recreation 19.4 16.9 16.2 16.0 16.5 17.7
-11.1% -12.7% -4.5% -1.1% 3.1% 7.3%
Manufacturing 56.8 40.4 41.4 49.8 56.3 65.4
  6.8% -29.0% 2.6% 20.2% 13.2% 16.2%
Total (1) 375.7 290.4 283.1 300.8 321.8 354.6
-14.2% -22.7% -2.5% 6.2% 7.0% 10.2%

(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.


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