Total Construction Spending and its Major Components
The U.S. Census Bureau reported that total construction spending advanced 0.9% in December to $885.0 billion at a seasonally adjusted annual rate (SAAR), its ninth consecutive monthly increase. Spending numbers for October and November were revised up $8.0 billion and $11.0 billion, respectively. The November revision changed a 0.3% decline into a 0.1% gain. For the year, construction spending increased 9.2% over 2011.
Nonresidential building construction rose 1.0% to $301.0 billion (SAAR) in December following a 1.4% drop in November. October spending was revised up $3.0 billion and November was revised up $2.2 billion. For the year, spending was up 5.6% from 2011.
Heavy engineering (non-building) construction spending was the one area of weakness in December, falling 0.5% to $269.4 billion (SAAR) after jumping 1.1% in November. November’s number included a $2.3 billion upward revision. Despite the cutbacks in public financing for heavy engineering projects, spending was up 7.4% for the year.
Total residential construction spending, which includes improvements, continued its upward march, increasing for the ninth consecutive month, jumping 2.1% to $314.6 billion (SAAR) in December after increasing 0.7% in November. New residential construction spending, which excludes improvements, rose a healthy 1.4% after increasing 1.6% in November. For 2012, total residential construction spending was up 15.4% from 2011 while new residential construction was up 19.6% from 2011.
Total public construction spending fell for the fourth month in a row, down a seasonally adjusted (SA) 1.4% in December after slipping 0.1% in November. For 2012, public construction spending decreased 2.7%. Total private construction spending shot up 2.0% in December, its tenth consecutive monthly increase, after rising a more modest 0.2% in November. For the year, private construction spending increased 16.1% over 2011.
U.S. Total Construction Spending | ||||||||
| Current Monthly | 3-Month Moving Average | Year-to-Date (NSA) | ||||||
| Oct-12 | Nov-12 | Dec-12 | Oct-12 | Nov-12 | Dec-12 | Jan-11 to Dec-11 |
Jan-12 to Dec-12 |
|
| New Single-family | 141.5 | 143.7 | 144.8 | 136.5 | 140.5 | 143.4 | 108.2 | 129.2 |
| Month-over-Month % Change | 3.8% | 1.5% | 0.8% | 3.5% | 3.0% | 2.0% | ||
| Year-over-year % Change (NSA) | 29.7% | 30.6% | 29.0% | -3.9% | 19.4% | |||
| New Multifamily (1) | 29.6 | 30.2 | 31.6 | 28.7 | 29.4 | 30.5 | 22.6 | 27.2 |
| 4.0% | 2.2% | 4.5% | 2.2% | 2.5% | 3.6% | |||
| 29.7% | 30.4% | 34.3% | -6.1% | 20.3% | ||||
| New Residential (2) | 171.1 | 173.9 | 176.4 | 165.2 | 170.0 | 173.8 | 130.8 | 156.4 |
| 3.8% | 1.6% | 1.4% | 3.3% | 2.9% | 2.3% | |||
| 29.7% | 30.5% | 29.9% | -4.3% | 19.6% | ||||
| Residential Improvements (3) | 135.1 | 134.3 | 138.2 | 132.1 | 133.8 | 135.8 | 114.9 | 127.0 |
| 2.2% | -0.6% | 2.9% | 2.4% | 1.3% | 1.5% | |||
| 16.9% | 12.3% | 17.4% | 2.2% | 10.5% | ||||
| Total Residential (4) (5) | 306.2 | 308.2 | 314.6 | 297.3 | 303.8 | 309.7 | 245.7 | 283.4 |
| 3.1% | 0.7% | 2.1% | 2.9% | 2.2% | 1.9% | |||
| 23.3% | 22.2% | 24.2% | -1.4% | 15.4% | ||||
| Nonresidential Building | 302.3 | 298.1 | 301.0 | 300.7 | 299.4 | 300.4 | 283.2 | 298.9 |
| 1.5% | -1.4% | 1.0% | 0.5% | -0.5% | 0.4% | |||
| 5.1% | 1.7% | -0.2% | -2.5% | 5.6% | ||||
| Heavy Engineering (Non-Building) | 267.8 | 270.7 | 269.4 | 266.7 | 268.6 | 269.3 | 249.4 | 267.9 |
| 0.1% | 1.1% | -0.5% | 0.0% | 0.7% | 0.2% | |||
| 5.3% | 3.7% | 0.9% | -5.9% | 7.4% | ||||
| Total (1) | 876.2 | 876.9 | 885.0 | 864.8 | 871.8 | 879.4 | 778.3 | 850.2 |
| 1.6% | 0.1% | 0.9% | 1.2% | 0.8% | 0.9% | |||
| 11.1% | 8.8% | 7.4% | -3.3% | 9.2% | ||||
Monthly levels are seasonally adjusted at annual rates (SAAR figures). | ||||||||
The Economy
The United States economy continues to grow at a moderate pace despite facing various hurdles, many of them created by the politicians in our nation’s capital. The most immediate hurdle to overcome is the March 1 sequestration (an across-the-board reduction in spending for most areas of federal government) unless an agreement is reached over the federal budget. There is already a drag on economic growth as various federal agencies adjust their spending in anticipation of sequestration. The negative effects of threatened spending cuts will be limited if an agreement over the budget appears near.
The other major politically created risk is the federal debt ceiling. Legislation temporarily increased the debt ceiling until May 18 when it expires. Hitting the debt ceiling would mean that the Treasury would have to delay various federal payments, including Social Security and Medicare, federal payrolls, reimbursements to contractors, tax refunds, and debt payments. Not meeting debt payments would be a technical default of U.S. government debt and undoubtedly mean a downgrade of the U.S. debt rating, with negative fallout for many U.S. companies — most notably financial institutions.
Other, though lesser risks include possible sovereign debt default by one or more European countries, one or more countries abandoning the euro or total dissolution of the euro, and a significant and prolonged increase in energy prices. In spite of all these challenges, we expect the economy to continue to grow at an acceptable, if unspectacular, rate.
On the positive side, low interest rates and the reviving housing market are providing a much needed lift to the economy.
Risks to the Economy and the Forecast
As just noted, major risks to the economy include the following:
If one or more of these risks occur then economic growth will be lower than forecasted with negative fallout for commercial construction and would increase the possibility of a recession.
The Forecast
The Reed Construction Data forecast assumes that the outlined risks do not occur. Total construction spending is forecasted to grow 8.5% this year and 9.3% in 2014.
U.S. Total Construction Spending | ||||||
| Actual | Forecast | |||||
| 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | |
| New Single-family | 105.3 | 112.6 | 108.2 | 129.2 | 156.5 | 181.1 |
| Year-over-year % Change | -43.3% | 6.9% | -3.9% | 19.4% | 21.2% | 15.7% |
| New Multifamily (1) | 35.9 | 24.1 | 22.6 | 27.2 | 34.4 | 39.3 |
| -30.0% | -32.9% | -6.0% | 20.3% | 26.5% | 14.1% | |
| New Residential (2) | 141.2 | 136.7 | 130.8 | 156.4 | 191.0 | 220.3 |
| -40.4% | -3.2% | -4.3% | 19.6% | 22.1% | 15.4% | |
| Residential Improvements (3) | 112.7 | 112.5 | 114.9 | 127.0 | 143.7 | 155.2 |
| -6.6% | -0.2% | 2.2% | 10.5% | 13.2% | 8.0% | |
| Total Residential (4) (5) | 253.9 | 249.1 | 245.7 | 283.4 | 334.7 | 375.5 |
| -29.0% | -1.9% | -1.4% | 15.4% | 18.1% | 12.2% | |
| Nonresidential Building | 375.7 | 290.4 | 283.1 | 298.9 | 311.1 | 337.2 |
| -14.2% | -22.7% | -2.5% | 5.6% | 4.1% | 8.4% | |
| Heavy Engineering (Non-Building) | 273.5 | 265.0 | 249.4 | 267.9 | 276.6 | 295.1 |
| 0.5% | -3.1% | -5.9% | 7.4% | 3.2% | 6.7% | |
| Total (5) | 903.2 | 804.6 | 778.2 | 850.2 | 922.4 | 1,007.9 |
| -15.4% | -10.9% | -3.3% | 9.2% | 8.5% | 9.3% | |
(1) New Multifamily = New Private Multifamily + New Public Multifamily - Public Improvements | ||||||
