The unexpected pickup in March construction spending was due to large gains in power and manufacturing construction that offset continued declines in housing. The power and manufacturing gains come from the tail end of the 2003-07 business expansion and will not persist long these are refinery, oil & gas field and metal processing facilities started when energy and metal capacity was strained. Work on these facilities will be slowed, some may be cancelled and far fewer new facilities will be begun in the current economic environment.

The general downward trend in construction spending is still in place and is expected to continue to year end although the pace of decline will be slower than in recent months. Construction spending is forecast to decline 12.7% in 2009 and increase 3% in 2010. Jobsite spending will fall 5-6% from March through yearend and then rise 9% from the end of 2009 to the end of 2010.

The turnabout next year will be significant enough to end the slide in materials prices, labor wage gains and contractors margins. At least a third of the 2010 gain be higher prices not construction volume. Some of nest years’ cost increase will be due to the Davis-Bacon wage requirement on all stimulus funded construction projects.

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

*Residential Improvements include remodeling, renovation and replacement work.
Actuals: U.S. Census Bureau, Department of Commerce.
Forecasts and table: Reed Construction Data.