Nonresidential Building Construction Spending Fell for the Second Month in a Row in February

Nonresidential building construction spending dropped 1.4% at a seasonally adjusted (SA) rate in February after falling 1.3% in January. However, on a year-over-year not seasonally adjusted (NSA) basis, spending was up 8.3% and year-to-date it increased 8.9% compared to the same period in 2011.

“For lease” private projects spending fell 2.5% (SA) in February, its third consecutive monthly decline. Nonetheless, year-to-date for lease spending increased 2.6% compared to the same period a year ago. Two of the three components of for lease construction projects — lodging and office — were down for the third month in a row. The third, retail, was unchanged in December and decreased in January and February (-2.0% and -2.6%, respectively). Year-to-date, office and retail construction spending were up — 1.3% and 6.4%, respectively. Hotel construction was down 8.4% over the same period.

Construction spending for institutional projects sank 1.7% after rising 0.7% in January. On a year-to-date basis, spending was up 5.9% compared to the same period a year earlier. Only two relatively minor categories, religious and public safety construction spending, representing a little over 9% of institutional spending, increased in February, 2.7% and 0.9%, respectively. However, year-to-date, all institutional categories except religious construction spending were up compared to the same period a year ago.

Manufacturing construction spending was one bright spot in the nonresidential construction category, increasing 2.2% following January’s 7.2% plunge. The general resurgence in manufacturing construction spending, which rose in eleven of the previous thirteen months, was evident in its year-to-date increase of 40.6%.

The Forecast
The threat of even higher oil prices for a sustained period, which at the moment appears to be lessening, and developments in Europe (for now, read Spain) are the chief risks to the forecast. Nonetheless, the expectation is for spending totals to strengthen throughout 2012 and 2013 as the economy grows, companies expand in response to growing demand, and some producers move production from overseas back to the United States. Low long-term interest rates continue to be a positive for investment in plant and equipment. Increasing domestic demand and greater exports to Asia and South America are expected to more than offset the likely slowdown in exports to Europe.

The forecast is for nonresidential construction spending to increase 3.9% in 2012, down from last month’s forecast of 5.8%, and to strengthen in 2013, advancing 8.1%. The reduction in the 2012 forecast is largely due to the unexpectedly poor February performance in many of the nonresidential categories. Expected spending growth was reduced for lodging, office, retail, and education construction in 2012, as well as some minor tamping down on growth rates for some of the other categories.