Total Construction Spending and its Major Components
The U.S. Census Bureau reported that total construction spending advanced 0.3% in April after rising the same amount in March. April total construction spending was $820.7 billion at a seasonally adjusted annual rate (SAAR). Year-to-date not seasonally adjusted (NSA) construction spending was up 7.3% from the same period last year. The monthly increase was due solely to higher residential construction spending. Meanwhile, February and March spending was revised up a total of $18.3 billion.
Nonresidential building construction dropped 0.9% in April to $289.2 billion (SAAR), following a 0.5% increase in March. Nonetheless, on a year-to-date basis NSA spending was up 10.1% from the same period a year ago. Also, February and March spending was revised up a total of $5.9 billion.
Heavy engineering (non-building) construction spending fell 0.5% to $269.1 billion (SAAR), its third decrease in the last four months, following a 0.1% rise in March. Despite recent declines, on a year-to-date basis, spending was up 5.7% NSA from the same period in 2011. February and March spending was revised up a total of $2.4 billion.
Total residential construction spending, which includes improvements, was up a healthy 2.6% to $262.3 billion after advancing 0.4% in March. New residential construction spending, which excludes improvements, rose 1.7% after jumping 3.2% in March. Total residential construction spending was up 5.7% year-to-date compared to the same period a year earlier, while new residential construction was up 9.7%.
Total residential construction spending for February and March was revised up a total of $10.0 billion. Close to 90% of the revision was concentrated in residential improvements ($8.9 billion). Unfortunately, the accuracy of the residential construction spending numbers is greatly suspect since the discontinuation of the Survey of Residential Additions and Remodeling (SORAR) by the Census Bureau in 2008 due to lack of funding. As a result, residential improvements spending is subject to large month-to-month revisions and one of the reasons we emphasize new residential construction in our forecast write up.
Total public construction spending fell 1.4%, its fifth consecutive monthly decline, after falling 0.7% in March. On a year-to-date basis, spending was down 2.8% from a year ago. The outlook for public spending is for further declines as local governments balance their budgets and as Washington looks for ways to reduce the federal government’s deficit. Total private construction spending rose 1.2% following March’s 0.8% increase. On a year-to-date basis, private construction spending was up 12.9% 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||-1.3%||4.2%||1.8%||1.1%||2.0%||1.5%|
|Year-over-year % Change (NSA)||9.2%||10.5%||1.3%||-8.4%||9.8%|
|New Multifamily (1)||23.7||23.3||23.6||23.2||23.4||23.5||6.7||7.4|
|New Residential (2)||136.3||140.7||143.0||135.7||138.0||140.||37.6||41.3|
|Residential Improvements (3)||118.5||115.1||119.3||118.9||117.2||117.6||32.2||32.5|
|Total Residential (4) (5)||254.9||255.8||262.3||254.5||255.2||257.7||69.8||73.8|
|Heavy Engineering (Non-Building)||270.2||270.4||269.1||274.9||271.3||269.9||71.2||75.3|
Monthly levels are seasonally adjusted at annual rates (SAAR figures).
Recent economic reports have shown weakness that may be due to an unwinding of the effects of the unusually mild winter and warm early spring weather in much of the country, which undoubtedly pulled some activity forward and may have led to some overstatement of the data due to the seasonal adjustment process. First quarter real (inflation adjusted) growth in gross domestic product (GDP) was revised down to 1.9% (SAAR) from the previously reported 2.2%. Nonfarm payroll employment increased a paltry 69,000 (SAAR) in May following an almost as weak 77,000 increase in April, which was revised down from the previously reported 115,000. The May unemployment rate rose to 8.2%, where it was in March, from April’s 8.1%. (For a fuller discussion of the current state of the economy, see Gauging the State of the Economy.)
Risks to the Economy and the Forecast
Europe continues to muddle through its problems, with Spain and Greece the current focus. Although Europe is able to work through its immediate problems as they crop up—witness the recent loan facility for Spain to help it with its 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. A deep European recession would be a drag on U.S. growth, but it is a default on 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 inability to reach a compromise and move forward on even the most basic issues such as annual funding bills is unnecessarily adding to the budget deficit and creating uncertainty, holding back hiring and purchasing plans. The Bush tax cuts are set to expire at the end of this year. Presumably they will be extended in some form. But if gridlock prevents some version of a reasonable extension of current tax law, the fiscal drag would be enough 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. 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, though 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 5.2% in 2012 and 6.0% in 2013. The forecasted growth rate for 2012 is increased from last month’s 3.8%. The upward revision for 2012 is largely due to the revision of February and March construction spending numbers.
U.S. Total Construction Spending
|Year-over-year % Change||-39.1%||-43.3%||6.9%||-5.2%||14.5%||11.9%|
|New Multifamily (1)||51.2||35.9||23.7||22.1||24.2||27.2|
|New Residential (2)||237.0||141.2||136.2||128.9||146.4||163.9|
|Residential Improvements (3)||120.7||112.7||112.5||116.6||119.6||125.0|
|Total Residential (4) (5)||357.7||253.9||248.7||245.5||266.0||288.8|
|Heavy Engineering (Non-Builidng)||272.1||273.5||266.0||266.2||271.4||277.3|
(1) New Multifamily = New Private Multifamily + New Public Multifamily - Public Improvements