Total Construction Spending and its Major Components
The U.S. Census Bureau reported that total construction spending increased 0.9% in May to $830.0 billion at a seasonally adjusted annual rate (SAAR) after rising 0.6% in April. Year-to-date not seasonally adjusted (NSA) construction spending was up 9.4% from the same period last year. The numbers incorporate the Census Bureau’s annual benchmark revision of the construction spending data over the previous two years (back to January 2012). See www.reedconstructiondata.com/construction-forecast/news/2012/07/updating-history-revised-construction-spending-data-for-2010-12/ for a brief commentary and tables showing the revisions.
Nonresidential building construction slipped 0.1% for the second month in a row to $296.4 billion (SAAR). Nonetheless, on a year-to-date basis NSA spending was up 10.1% from the same period a year ago.
Heavy engineering (non-building) construction spending edged up 0.2% to $265.9 billion (SAAR), following a 0.4% increase in April. On a year-to-date basis, spending was up 11.9% NSA from the same period in 2011.
Total residential construction spending, which includes improvements, was up 2.9% to $267.7 billion (SAAR) after advancing 1.6% in April. New residential construction spending, which excludes improvements, expanded 2.3% after increasing 1.7% in April. Total residential construction spending was up 6.2% year-to-date compared to the same period a year earlier, while new residential construction was up 11.2%.
Total public construction spending fell 0.4%, its fifth consecutive monthly decline, after falling 0.9% in April. On a year-to-date basis, public spending was down 3.5% from a year ago. The outlook for public spending is for further declines as local governments balance their budgets and as Washington limits public spending. Total private construction spending increased 1.6% following April’s 1.3% rise. On a year-to-date basis, private construction spending was up 16.6% over the same period last year.
U.S. Total Construction Spending
|Current Monthly||3-Month Moving Average||Year-to-Date (NSA)|
|Month-over-Month % Change||-0.1%||1.2%||1.8%||1.4%||1.0%||1.0%|
|Year-over-year % Change (NSA)||9.6%||11.7%||14.6%||-8.8%||10.9%|
|New Multifamily (1)||24.1||25.0||26.2||24.0||24.4||25.1||8.8||9.9|
|New Residential (2)||141.8||144.2||147.5||141.0||142.6||144.5||48.9||54.3|
|Residential Improvements (3)||114.4||116.1||120.2||116.6||116.1||116.9||43.0||43.3|
|Total Residential (4) (5)||256.2||260.2||267.7||257.6||258.7||261.4||91.9||97.6|
|Heavy Engineering (Non-Building)||264.5||265.4||265.9||267.7||265.3||265.3||86.7||97.0|
Monthly levels are seasonally adjusted at annual rates (SAAR figures).
Recent economic reports have indicated that economic growth has slowed. Although we believe this will prove to be a temporary slowdown, the reports are troubling. Concern over Europe and decelerating economic growth in China have contributed to unease among businesses and may be holding back investment and hiring.
Nonfarm payroll employment increased an anemic 80,000 (SAAR) in June following a slightly weaker 77,000 increase in May, which was revised up from the previously reported 69,000. Over the past three months employment gains have remained under 100,000, averaging 75,000 a month. This is barely enough to absorb growth of the workforce. The June unemployment rate was unchanged from May’s 8.2%.
On the positive side lower gasoline and other energy prices are putting money back in the pockets of consumers and helping the bottom line of many businesses. Although still at a low level, residential construction has been improving, which will have widespread positive effects on the economy. Recent enactment of the federal government’s reauthorization of transportation funding through September 2014 is a definite positive for highway projects. This ends the series of temporary funding extensions, and although not as good as five year funding would have been, allows for more long-term planning and projects, which ultimately are more cost effective.
Risks to the Economy and the Forecast
Europe continues to muddle through its problems, with Spain and Greece on the stage and Italy waiting in the wings. Although Europe is able to work through its immediate problems as they crop up, such as helping Spanish banks, the failure to provide any solid long-term solutions means that developments in Europe remain a risk to the U.S. economy. The European Union and the euro are likely to survive, although that is not a certainty. Greece is clearly the weakest link and most likely to leave/be booted from the monetary union. Meanwhile, several European countries already are in recession. Harsh austerity measures being imposed on many governments are making a bad situation worse. A deep European recession would be a drag on U.S. growth, but it is a default of European debt that carries the greatest risk due to the impact on the U.S. and world financial markets.
Political paralysis in Washington is another major risk for the U.S. economy. The difficulty in reaching compromise on several basic issues is unnecessarily creating uncertainty, delaying hiring and purchasing plans. The Bush tax cuts are set to expire at the end of this year. Failure to extend current tax law in some form would create enough fiscal drag to precipitate a new recession. Also the U.S. will once again face the need to raise the federal debt ceiling. At the moment, the only “action” on that front has been unhelpful political posturing. Recent passage of major legislation such as the transportation funding bill indicates that progress on the business of Congress can still be made. Compromise is not dead, but is possible in some cases. Our forecast assumes that the worst case scenarios will not come to pass, but the risk that they might remains.
Higher energy prices are another risk to the health of the U.S. and world economies, although that risk has fallen of late. The recent declines in oil prices have translated into lower energy prices, helping consumers and most businesses. Lower energy prices will be a boost to the economy, but a prolonged, spike in oil prices (to $150 a barrel or higher) would hurt consumers and adversely affect economic growth, possibly pushing the U.S. into recession.
Assuming no recession, the Reed Construction Data forecast is for total construction spending to increase 7.3% in 2012, up from last month’s 5.2% largely due to the benchmark revisions, and 6.2% in 2013.
U.S. Total Construction Spending
|Year-over-year % Change||-39.1%||-43.3%||6.9%||-3.9%||13.4%||11.3%|
|New Multifamily (1)||51.2||35.9||24.1||22.6||26.0||29.7|
|New Residential (2)||237.0||141.2||136.7||130.8||148.7||166.2|
|Residential Improvements (3)||120.7||112.7||112.5||114.9||119.5||125.0|
|Total Residential (4) (5)||357.7||253.9||249.1||245.7||268.1||291.2|
|Heavy Engineering (Non-Builidng)||272.1||273.5||265.0||249.4||267.8||274.5|
(1) New Multifamily = New Private Multifamily + New Public Multifamily - Public Improvements