Construction Spending Advances in May

07/23/2013 by Bernard M. Markstein

Total Construction Spending and its Major Components
The U.S. Census Bureau reported that total construction spending advanced 0.5% in May to $874.9 billion at a seasonally adjusted annual rate (SAAR) following a 0.1% rise in April. Year-to-date not seasonally adjusted (NSA) construction spending was up 4.9% compared to the same period in 2012. The numbers incorporate the Census Bureau’s annual benchmark revision of the construction spending data over the previous two years (back to January 2011). See “Revisions to Construction Spending Data for 2011-13” for a brief commentary and tables showing the revisions.

Nonresidential building construction fell for the third month in a row, down 1.5% to $284.8 billion (SAAR) in May after declining 0.5% in April. Year-to-date spending was 2.2% (NSA) lower than the same period in 2012.

Heavy engineering (non-building) construction spending increased for the third month in a row, up 1.9% to $261.4 billion (SAAR) in May after growing 1.2% in April. However, there was a significant downward revision in the spending numbers for each of the first four months of the year: $18.6 billion (January), $10.6 billion (February), $3.0 billion (March), and $7.6 billion (April). As a percentage of the previously reported numbers, this was -6.9%, -4.0%, -1.2%, and -2.9%, respectively. Year-to-date heavy engineering NSA spending was down 2.1% from the same period in 2012.

Total residential construction spending, which includes improvements, rose 1.2% in May to $328.6 billion (SAAR) after slipping 0.1% in April. New residential construction spending, which excludes improvements, increased 0.8% to $203.8 billion after moving 1.5% higher in April. Year-to-date NSA total residential construction spending was up 19.5%, and new residential construction was up 35.9% from 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)
  Mar-13 Apr-13 May-13 Mar-13 Apr-13 May-13 Jan-12 to
May-12
Jan-13 to
May-13
New Single-family 164.0 165.7 166.3 159.7 163.7 165.3 45.5 61.2
  Month-over-Month % Change 1.7% 1.0% 0.4% 3.1% 2.5% 1.0%    
  Year-over-year % Change (NSA) 36.6% 36.0% 33.4% 34.3% 35.8% 35.2% 13.6% 34.5%
New Multifamily (2) 35.3 36.6 37.5 34.3 35.3 36.5 10.0 14.3
  4.4% 3.6% 2.4% 1.9% 3.0% 3.4%    
  44.0% 43.1% 42.7% 42.5% 42.7% 42.7% 11.8% 42.7%
New Residential (3) 199.3 202.3 203.8 193.9 198.9 201.8 55.5 75.5
  2.1% 1.5% 0.8% 2.9% 2.6% 1.4%    
  37.9% 37.3% 35.0% 35.8% 37.0% 36.7% 13.3% 35.9%
Residential Improvements (4) 125.8 122.4 124.8 128.7 125.3 124.4 45.3 45.1
  -1.5% -2.7% 1.9% 5.5% -2.6% -0.8%    
  1.7% -6.0% -4.6% 4.1% -1.1% -3.4% 3.5% -0.5%
Total Residential (5) (6) 325.1 324.7 328.6 322.6 324.3 326.2 100.8 120.6
  0.7% -0.1% 1.2% 3.9% 0.5% 0.6%    
  22.5% 17.1% 15.9% 22.3% 20.2% 18.2% 8.7% 19.5%
Nonresidential Building 290.6 289.1 284.8 292.0 291.7 288.2 115.7 113.2
  -1.6% -0.5% -1.5% -0.8% -0.1% -1.2%    
  -2.5% -2.0% -4.4% -1.4% -1.8% -3.0% 9.7% -2.2%
Heavy Engineering (Non-Building) 253.4 256.5 261.4 252.7 253.9 257.1 94.4 92.4
  0.7% 1.2% 1.9% -3.6% 0.5% 1.3%    
  -3.1% 0.7% -1.1% -3.5% -2.7% -1.1% 8.5% -2.1%
Total (6) 869.2 870.3 874.9 867.4 869.8 871.5 310.9 326.2
  -0.1% 0.1% 0.5% 0.1% 0.3% 0.2%    
  5.3% 5.3% 3.6% 5.3% 5.0% 4.7% 9.0% 4.9%

(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 RCD 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 jumped 1.8% at a seasonally adjusted (SA) rate in May after edging down 0.2% in April. Year-to-date NSA public construction spending was down 5.2% from the same period in 2012.

Total private construction spending was essentially flat in May after inching up 0.3% in April. Despite recent slow monthly growth, year-to-date NSA private construction spending was up 9.8% from 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
  Mar-13 Apr-13 May-13 Mar-13 Apr-13 May-13 Jan-12 to
May-12
Jan-13 to
May-13
2010 2011 2012
Private Spending 604.0 605.7 605.4 601.0 603.8 605.0 209.7 230.3 500.6 501.6 577.9
  Month-over-Month % Change 0.4% 0.3% 0.0% 0.3% 0.5% 0.2%          
  Year-over-year % Change (NSA) 10.8% 9.6% 7.4% 10.9% 10.1% 9.2% 15.2% 9.8% -14.9% 0.2% 15.2%
Public Spending 265.1 264.7 269.5 266.4 266.0 266.4 101.2 95.9 304.0 286.4 279.0
  -1.2% -0.2% 1.8% -0.4% -0.1% 0.1%          
  -6.3% -3.8% -4.1% -6.3% -5.6% -4.7% -2.0% -5.2% -3.5% -5.8% -2.6%
   Total Federal Spending 23.5 23.6 23.7 23.8 23.6 23.6 11.2 9.3 31.1 31.7 27.4
  -0.3% 0.3% 0.6% -4.1% -1.0% 0.2%          
  -22.8% -13.8% -14.9% -18.6% -18.8% -17.3% -12.6% -16.9% 9.5% 1.7% -13.5%
       Federal Nonresidential
       Spending
21.7 22.1 22.4 22.2 22.0 22.0 10.5 8.7 28.4 29.1 25.8
  -2.4% 2.0% 1.2% -4.7% -0.8% 0.3%          
  -24.8% -13.9% -15.0% -19.7% -19.6% -18.1% -9.5% -17.6% 8.5% 2.4% -11.4%
       Federal Residential
       Spending
1.9 1.5 1.4 1.6 1.6 1.6 0.7 0.6 2.7 2.6 1.6
  31.8% -19.0% -8.9% 5.2% -2.7% -0.8%          
  13.4% -10.9% -14.0% -1.1% -5.8% -4.2%     21.1% -5.7% -38.2%
   Total State & Local Spending 241.6 241.1 245.7 242.6 242.5 242.8 90.0 86.6 272.8 254.8 251.7
  -1.3% -0.2% 1.9% 0.0% 0.0% 0.1%          
  -4.0% -2.6% -2.9% -4.7% -3.9% -3.1% -0.6% -3.8% -4.8% -6.6% -1.2%
       State & Local
       Nonresidential Spending
237.1 236.4 240.8 238.3 238.0 238.1 88.2 84.8 265.3 248.8 247.0
  -1.5% -0.3% 1.9% -0.1% -0.1% 0.0%          
  -4.1% -2.6% -3.2% -4.5% -3.9% -3.3% 0.2% -3.8% -5.5% -6.2% -0.7%
       State & Local Residential
       Spending
4.6 4.7 4.9 4.3 4.5 4.7 1.9 1.8 7.6 6.0 4.7
  10.7% 3.0% 5.0% 1.1% 4.0% 6.1%          
  0.9% -1.0% 12.8% -13.2% -6.1% 4.2% -26.6% -5.3% 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 July employment report provided good news. Nonfarm SA payroll employment increased by 195,000 jobs in June, the same as in May (revised up from an increase of 175,000). Also, April employment was revised up by 50,000 jobs. So far this year, employment gains have averaged just over 200,000 jobs per month. This compares to an average gain of 185,000 jobs per month in the first half of 2012 and an average gain of 180,000 jobs per month in the second half of 2012.

SA construction employment jumped 13,000 jobs in June after increasing by 7,000 jobs in May. The NSA construction unemployment rate for June was 9.8%, down from 12.8% in June 2012 and the first time it was below 10% since September 2008.

The improvement in employment is welcome after the downward revision of growth in real (inflation-adjusted) gross domestic product (GDP) for the first quarter from 2.4% SAAR to 1.8%. This slow rate of growth appears to be the result of severe weather conditions in much of the country, the continuing drag from the termination of the two-year Social Security tax holiday at the end of 2012 (an additional 2% tax on wages and salaries), and the effects of government spending cutbacks. Meanwhile, the negative impact of sequestration (the across the board cuts to much of federal spending) on economic growth is increasing and spreading. Recession in much of Europe, which adversely affects our exports, is yet another hindrance to growth.

There are a number of risks to future economic growth. These include likely legislative battles over providing funding for 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 fall or early winter.

Counter to these negative forces, there are numerous positive forces propelling economic growth higher. Among these are historically low interest rates (despite recent rate increases), the strengthening housing market, the improved consumer balance sheet (aided by rising home values), and the need for many companies to increase employment and to increase investment in plant and equipment.

Weighing the various forces and risks, the Reed forecast for construction activity assumes continued moderate economic growth.

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

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. Total construction spending is forecast to grow 3.7% this year, due to continued strong growth in new residential construction, and 9.4% in 2014. The forecast assumes that nonresidential building construction is near the end of its retrenchment and will pick up strength soon, improving over the remainder of this year and throughout next year. Heavy engineering (non-building) construction is already back on the growth path. That improved growth should continue through next year and beyond. The main impediment to stronger performance in the sector is limited public funding from the federal government on down to the local level.

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

  Actual Forecast
  2009 2010 2011 2012 2013 2014
New Single-family 105.3 112.6 108.2 132.0 169.5 196.7
   Year-over-year % Change -43.3% 6.9% -3.9% 22.0% 28.4% 16.1%
New Multifamily (1) 35.9 24.1 22.7 27.8 37.5 43.3
-30.0% -32.9% -5.7% 22.6% 34.8% 15.3%
New Residential (2) 141.2 136.7 130.9 159.9 207.0 240.0
  -40.4% -3.2% -4.2% 22.1% 29.5% 15.9%
Residential Improvements (3) 112.7 112.5 121.8 126.7 127.9 139.4
-6.6% -0.2% 8.3% 4.0% 1.0% 9.0%
Total Residential (4) (5) 253.9 249.1 252.7 286.5 334.9 379.4
-29.0% -1.9% 1.4% 13.4% 16.9% 13.3%
Nonresidential Building 375.7 290.4 284.0 298.5 293.1 314.8
-14.2% -22.7% -2.2% 5.1% -1.8% 7.4%
Heavy Engineering (Non-Building) 273.5 265.0 251.3 272.0 260.7 278.2
  0.5% -3.1% -5.2% 8.2% -4.1% 6.7%
Total (5) 903.2 804.6 788.0 857.0 888.8 972.4
-15.4% -10.9% -2.1% 8.7% 3.7% 9.4%

(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 RCD 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.

Read more forecasts from Reed Construction Data:

Nonresidential Building Construction Spending Continues to Struggle in May
Heavy Engineering Construction Strengthens in May
New Residential Construction Spending Growth Continues to Slow in May