Construction Spending Improves in February

04/26/2013 by Bernard M. Markstein

Total Construction Spending and its Major Components
The U.S. Census Bureau reported that total construction spending rebounded 1.2% in February to $885.1 billion at a seasonally adjusted annual rate (SAAR) following a 2.1% drop in January. However, spending numbers for December and January were revised down $9.0 billion and $8.5 billion, respectively, and were 1.0% lower than the previously reported numbers for each month. Year-to-date (January and February) not seasonally adjusted (NSA) construction spending was up 6.6% compared to the same period in 2012.

Nonresidential building construction rose 0.6% to $297.8 billion (SAAR) in February after decreasing 1.1% in January. Year-to-date spending was 0.6% (NSA) higher than in 2012.

Heavy engineering (non-building) construction spending made a modest recovery from January’s sharp decline of 5.3%, rising 0.9% to $277.8 billion (SAAR) in February. January’s drop was due to a huge jump in power construction spending in an effort to take advantage of expiring tax credits in November and December. Excluding power construction spending, heavy construction spending increased 0.7% in January and 0.9% in February. Year-to-date heavy engineering (including power) NSA spending increased 2.1% from the same period in 2012.

Total residential construction spending, which includes improvements, increased 2.0% in February to $309.6 billion (SAAR) after no change in January. New residential construction spending, which excludes improvements, advanced 3.0% after jumping 3.9% in January. Year-to-date NSA total residential construction spending was 19.2% higher, and new residential construction was 33.8% 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)
  Dec-12 Jan-13 Feb-13 Dec-12 Jan-13 Feb-13 Jan-12 to
Feb-12
Jan-13 to
Feb-13
New Single-family 146.3 151.6 158.1 144.1 147.5 152.0 15.5 20.6
  Month-over-Month % Change 1.3% 3.6% 4.3% 2.4% 2.3% 3.1%    
  Year-over-year % Change (NSA) 29.5% 31.2% 34.6% 30.0% 30.5% 31.7% 8.7% 32.8%
New Multifamily (2) 31.8 33.5 32.6 30.6 31.9 32.6 3.6 5.0
  4.6% 5.3% -2.7% 3.8% 4.2% 2.3%    
  35.0% 41.9% 34.5% 20.4% 41.9% 38.1% 9.3% 38.1%
New Residential (3) 178.1 185.1 190.6 174.7 179.4 184.6 19.1 25.6
  1.9% 3.9% 3.0% 2.6% 2.7% 2.9%    
  30.5% 33.1% 34.6% 30.3% 31.4% 32.7% 8.8% 33.8%
Residential Improvements (4) 125.4 118.4 118.9 130.6 125.0 120.9 14.5 14.5
  -4.5% -5.6% 0.5% -1.7% -4.3% -3.3%    
  3.9% -1.2% 1.2% 10.8% 4.4% 1.4% 2.6% -0.1%
Total Residential (5) (6) 303.5 303.4 309.6 305.3 304.4 305.5 33.6 40.1
  -0.9% 0.0% 2.0% 0.7% -0.3% 0.4%    
  18.4% 18.2% 20.3% 21.1% 19.3% 18.9% 6.0% 19.2%
Nonresidential Building 299.5 296.1 297.8 299.9 297.9 297.8 43.4 43.7
  0.5% -1.1% 0.6% 0.2% -0.7% 0.0%    
  0.1% 1.0% 0.2% 2.5% 1.1% 0.4% 12.9% 0.6%
Heavy Engineering (Non-Building) 290.5 275.2 277.8 282.2 284.7 281.2 35.6 36.4
  0.8% -5.3% 0.9% 2.8% 0.9% -1.2%    
  15.7% 1.6% 2.6% 11.5% 11.1% 7.1% 14.8% 2.1%
Total (6) 893.6 874.8 885.1 887.4 887.0 884.5 112.6 120.1
  0.1% -2.1% 1.2% 1.2% -0.1% -0.3%    
  10.7% 6.4% 6.9% 11.3% 9.9% 8.1% 11.4% 6.6%

(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 rose for the second month in a row, up a seasonally adjusted (SA) 0.9% in February after increasing 0.2% in January. However, year-to-date NSA public construction spending was 3.8% lower than in the same period in 2012.

Total private construction spending increased 1.3% in February after plunging 3.1% in January. Nonetheless, year-to-date NSA private construction spending was 11.5% higher than in 2012.

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

  Current Monthly (1)
(latest actual values)
3-Month Moving Average Year-to-Date (NSA) Annual
  Dec-12 Jan-13 Feb-13 Dec-12 Jan-13 Feb-13 Jan-12 to
Feb-12
Jan-13 to
Feb-13
2010 2011 2012
Public Spending 269.0 269.6 272.1 272.6 271.0 270.2 35.9 34.5 304.0 283.3 275.7
  Month-over-Month % Change -2.0% 0.2% 0.9% -0.7% -0.6% -0.3%          
  Year-over-year % Change (NSA) -6.5% -3.3% -4.2% -3.5% -4.4% -4.8% -2.4% -3.8% -3.5% -3.5% -3.5%
Private Spending 624.7 605.2 613.0 614.9 616.0 614.3 76.8 85.6 500.6 495.0 578.8
  1.1% -3.1% 1.3% 2.1% 0.2% -0.3%          
  19.1% 10.8% 12.1% 19.1% 17.0% 14.2% 19.2% 11.5% -14.9% -14.9% -14.9%

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

The Economy
The employment report for March was disappointing. The data showed a scant 88,000 increase in nonfarm payroll jobs for the month. That is the smallest increase since June 2012. It follows the largest monthly gain — 268,000 — since February 2012. Some solace can be taken in that the March number is subject to revision. The January payroll number was revised up 29,000 jobs, and the February number was revised up 32,000 jobs.

Care should always be exercised when looking at just one month’s report. February’s increase was a surprise on the upside. The average for the February and March increases is 178,000 jobs, roughly in line with the average monthly increase of 180,000 jobs for the six months prior to that. Also, special circumstances may have held the employment number down. Federal jobs fell by 14,000 — 12,000 of which were due to reductions in U.S. Postal Service employment.

Still, the low number bears watching. It is unlikely that the disappointing report was solely due to federal budget cuts from sequestration, but sequestration may well have been a contributing factor. Although there were no direct layoffs in the federal government due to sequestration, many private firms involved in government contracts have indicated they are holding hiring in abeyance and are not renewing some employment contracts. Likewise, many federal departments and agencies have slowed or stopped hiring due to sequestration.

On the positive side, construction employment saw an increase of 18,000 jobs — the tenth month in a row that construction employment increased. On a year-over-year basis, construction employment was up 174,000 jobs.

Overall, the United States economy appears to be healthy and able to move forward despite many impediments and risks. One of the impediments to faster growth is sequestration. To date, sequestration’s effects have been limited, but are expected to grow over the next several months as the cutbacks in federal spending are instituted and the effects spread throughout the economy. Recession in much of Europe also hurts U.S. growth by limiting our exports to that region of the world.

Major risks on the horizon include the expiration of the temporary federal debt ceiling in mid-May and likely battles over funding the federal government’s operations beyond fiscal 2013, which concludes at the end of September 2013.

Despite these impediments and risks, there are positive forces helping lift the economy. These include historically low interest rates and the improving housing market. The Reed forecast is based on the economy continuing to advance at a moderate pace.

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

The result of any one of these risks occurring would be to reduce economic growth and to increase the probability of recession. It would also mean lower commercial construction spending than currently in the Reed Construction Data forecast.

The Forecast
The Reed Construction Data forecast assumes that the above risks are avoided. Total construction spending is forecast to grow 7.3% this year and 9.7% in 2014.

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

  Actual Forecast
  2009 2010 2011 2012 2013 2014
New Single-family 105.3 112.6 108.2 129.3 162.0 187.1
   Year-over-year % Change -43.3% 6.9% -3.9% 19.5% 25.4% 15.5%
New Multifamily (1) 35.9 24.1 22.6 27.2 35.0 39.9
-30.0% -32.9% -6.0% 20.4% 28.4% 14.1%
New Residential (2) 141.2 136.7 130.8 156.5 197.0 227.0
  -40.4% -3.2% -4.3% 19.6% 25.9% 15.2%
Residential Improvements (3) 112.7 112.5 114.9 125.6 123.1 135.8
-6.6% -0.2% 2.2% 9.3% -1.9% 10.3%
Total Residential (4) (5) 253.9 249.1 245.7 282.0 320.1 362.9
-29.0% -1.9% -1.4% 14.8% 13.5% 13.4%
Nonresidential Building 375.7 290.4 283.1 299.1 307.2 333.3
-14.2% -22.7% -2.5% 5.6% 2.7% 8.5%
Heavy Engineering (Non-Building) 273.5 265.0 249.4 273.4 289.9 309.8
  0.5% -3.1% -5.9% 9.6% 6.0% 6.9%
Total (5) 903.2 804.6 778.2 854.5 917.2 1,006.0
-15.4% -10.9% -3.3% 9.8% 7.3% 9.7%

(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 Partially Recovers in February
Heavy Engineering Construction Begins to Improve in February
Single-family Construction Sends New Residential Spending Higher in February