Construction Spending Slips in November

01/23/2013 by Bernard M. Markstein

Total Construction Spending and its Major Components
The U.S. Census Bureau reported that total construction spending edged down 0.3% in November to $866.0 billion at a seasonally adjusted annual rate (SAAR) after increasing 0.7% in October, ending seven monthly increases in a row. November’s decline was due to a drop in nonresidential construction spending. Year-to-date not seasonally adjusted (NSA) construction spending was still 9.2% higher than the same period in 2011.

Nonresidential building construction fell 1.2% to $295.8 billion (SAAR) in November following a 0.5% increase in October. Despite the November and October declines, on a year-to-date NSA basis spending rose 6.0% from the same period in 2011.

Heavy engineering (non-building) construction spending was flat at $268.3 billion (SAAR) in November after advancing 0.3% in October. On a year-to-date NSA basis, spending was up 8.2% from 2011.

Total residential construction spending, which includes improvements, increased for the eighth month in a row albeit more slowly than in recent months, increasing 0.4% to $301.9 billion (SAAR) after rising 1.3% in October. New residential construction spending, which excludes improvements, jumped 1.2% after increasing an even stronger 3.8% in October. Year-to-date total residential construction spending was up 14.0% from 2011 while new residential construction was up 18.7% from 2011.

Total public construction spending continued its recent erratic monthly pattern, falling a seasonally adjusted (SA) 0.4% in November after increasing 1.0% in October. However, looking at the year-to-date numbers compared to the same period in 2011 there is no question as to the direction of public construction spending in 2012 — down 2.2%. Total private construction spending slipped 0.2% in November, ending eight consecutive monthly increases and following a 0.6% advance in October. On a year-to-date basis, private construction spending increased 15.8% over 2011.

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

  Current Monthly 3-Month Moving Average Year-to-Date (NSA)
  Sep-12 Oct-12 Nov-12 Sep-12 Oct-12 Nov-12 Jan-11 to
Nov-11
Jan-12 to
Nov-12
New Single-family 136.4 141.4 143.3 131.9 136.5 140.4 99.9 118.4
  Month-over-Month % Change 3.6% 3.7% 1.3% 2.8% 3.5% 2.9%    
  Year-over-year % Change (NSA) 25.3% 29.6% 30.2%       -4.6% 18.6%
New Multifamily (1) 28.4 29.6 29.8 28.1 28.7 29.3 20.8 24.8
  1.2% 4.1% 0.7% 1.2% 2.2% 2.0%    
  20.6% 30.9% 29.7%       -6.7% 19.1%
New Residential (2) 164.8 171.0 173.1 160.0 165.2 169.7 120.7 143.2
  3.2% 3.8% 1.2% 2.5% 3.3% 2.7%    
  24.5% 29.8% 30.1%       -5.0% 18.7%
Residential Improvements (3) 132.1 129.7 128.7 129.0 130.3 130.2 106.4 115.8
  2.3% -1.9% -0.7% 1.9% 1.0% -0.1%    
  19.5% 10.7% 6.7%       1.6% 8.8%
Total Residential (4) (5) 296.9 300.7 301.9 289.0 295.5 299.8 227.1 259.0
  2.8% 1.3% 0.4% 2.3% 2.3% 1.5%    
  22.3% 20.2% 19.4%       -2.0% 14.0%
Nonresidential Building 297.8 299.3 295.8 299.3 299.7 297.6 259.6 275.1
  -1.4% 0.5% -1.2% -0.3% 0.1% -0.7%    
  0.4% 4.1% 1.4%       -3.6% 6.0%
Heavy Engineering (Non-Building) 267.5 268.3 268.3 266.6 266.9 268.0 228.7 247.3
  1.0% 0.3% 0.0% 0.1% 0.1% 0.4%    
  3.2% 6.3% 4.2%       -6.0% 8.2%
Total (1) 862.2 868.2 866.0 854.9 862.1 865.5 715.4 781.4
  0.7% 0.7% -0.3% 0.7% 0.8% 0.4%    
  7.9% 10.1% 7.9%       -3.9% 9.2%

Monthly levels are seasonally adjusted at annual rates (SAAR figures).
(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.

The Economy
The United States economy continues to face several challenges. The most immediate challenges originate in Washington, D.C. One former challenge — taxes — was resolved at the beginning of the year. The spending challenge was not. Decisions surrounding federal spending were delayed for up to two months. Unless the spending issues are resolved, on March 1 an automatic sequestration (an across-the-board reduction in federal spending split evenly between defense and non-defense spending with some areas of each protected from cuts) will go into effect. As drastic as sequestration would be, its effect can be minimized in the short term, particularly if an agreement over spending appears near.

The most immediate risk to the economy is the federal debt ceiling, another D.C. originated challenge that was yet to be resolved. The nation technically hit the debt ceiling in late December. Since then, the Treasury has been using special means to prevent the ceiling from becoming truly effective. But these tactics will only work for so long. Current estimates put that point at the latter part of February or early March. At that point the Treasury will have to delay various federal payments, including Social Security and Medicare, federal payrolls, reimbursements to contractors, tax refunds, and debt payments. The last would be a technical default on U.S. government debt and lead to a downgrade of the U.S. debt rating.

Despite these challenges, including potential problems in Europe, we expect the economy to continue to grow, albeit slower than it would without these threats hanging over the economy. Even without these challenges, the economy will be struggling against the drag from tax increases enacted at the beginning of the year. Of the various tax increases, the payroll tax increase — an increase slated under previous law and allowed to go into effect — will produce the greatest drag on the economy.

Meanwhile, low interest rates and the reviving housing market are positives for the economy. It is a testament to the strength of the economy that it continues to grow in the face of so many obstacles and risks.

Risks to the Economy and the Forecast
Even given the underlying strength of the economy, there are major risks that could derail the economy and commercial construction. These include the following:

Although we believe that these risks will be avoided, we cannot rule out the possibility of one or more of them occurring, which would mean lower than forecasted growth for the economy and commercial construction and increased probability of a recession.

The Forecast
The Reed Construction Data forecast assumes that the outlined risks do not occur. Total construction spending is estimated to increase 8.6% in 2012 and is forecasted to grow by 7.5% in 2013 and by 9.3% in 2014.

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

  Actual Forecast
  2009 2010 2011 2012 2013 2014
New Single-family 105.3 112.6 108.2 128.8 156.8 181.4
   Year-over-year % Change -43.3% 6.9% -3.9% 19.1% 21.7% 15.7%
New Multifamily (1) 35.9 24.1 22.6 27.1 33.2 37.9
-30.0% -32.9% -6.0% 19.9% 22.6% 14.1%
New Residential (2) 141.2 136.7 130.8 155.9 190.0 219.3
  -40.4% -3.2% -4.3% 19.2% 21.9% 15.4%
Residential Improvements (3) 112.7 112.5 114.9 123.8 132.8 143.3
-6.6% -0.2% 2.2% 7.8% 7.2% 8.0%
Total Residential (4) (5) 253.9 249.1 245.7 279.7 322.8 362.6
-29.0% -1.9% -1.4% 13.8% 15.4% 12.3%
Nonresidential Building 375.7 290.4 283.1 298.2 308.6 334.4
-14.2% -22.7% -2.5% 5.3% 3.5% 8.4%
Heavy Engineering (Non-Building) 273.5 265.0 249.4 267.5 277.2 295.7
  0.5% -3.1% -5.9% 7.3% 3.6% 6.7%
Total (5) 903.2 804.6 778.2 845.4 908.5 992.8
-15.4% -10.9% -3.3% 8.6% 7.5% 9.3%

(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 Takes a Step Back in November
Heavy Engineering Construction Spending Held Steady in November
New Residential Construction Spending Rises at a Slower Pace in November