WASHINGTON – “Robust gains in public and private nonresidential construction spending overpowered the continuing slump in homebuilding in April,” Ken Simonson, chief economist for The Associated General Contractors of America, said of the May construction spending report released today by the U.S. Department of Commerce’s Bureau of the Census.
“Total construction spending climbed 0.9 percent in May [after seasonal adjustment] as a 2.5-percent uptick in nonresidential spending more than offset a decline of 0.8 percent in residential construction,” Simonson said in summarizing the report.
The 0.9-percent rise, to $1.18 trillion – the biggest increase in 15 months – followed a revised 0.2-percent gain in April, the Census Bureau said.
The magnitude of the increase surprised analysts. A Bloomberg News survey of 48 economists had predicted a May increase of 0.1 percent, the same as originally reported in April.
Total public construction spending increased 2.2 percent to $284 billion, led by 13.4 increase in hospital and other health-care projects. Total private spending increased 0.5 percent to $892 billion, as a 2.7-percent rise private non-residential construction, the biggest since February, more than offset the 0.8 percent decrease in private residential construction.
“For the first five months of 2007 combined, total construction was down 3.9 percent compared to the same period in 2006,” Simonson noted. “During that span, nonresidential spending jumped 15 percent and residential plunged 18 percent.
“On the private side, the biggest year-to-date growth has been in lodging construction, up 60 percent; offices, 26 percent; hospitals, 22 percent; and multi-retail – ‘big box’ and other general merchandise stores, shopping centers and malls – 20 percent,” he said, adding: “I expect private nonresidential construction to keep up the pace for the second half of 2007, and probably right through 2008 as well.”
“Public construction rose 11 percent year-to-date,” Simonson noted. “The two big public categories – highways and streets ; and education – accounted for just over half the public total. Highway construction was 8.2 percent higher year-to-date, and education was up 9.9 percent.
“Every public category was up in May, and in the first five months of 2007 combined,” he continued. “But I foresee cutbacks later this year, as state and local revenues begin to trail budgeted amounts.”
“Private residential spending remains a disaster,” Simonson added. “Single-family construction skidded another 1.4 percent in May and 27 percent year-to-date. Multifamily construction and residential improvements were roughly flat for the month, and the first five months combined. I don’t foresee an improvement in these numbers before the second quarter of 2008.”
By contrast, David Sloan, senior economist at 4Cast Inc. in New York, told Bloomberg News that “Housing is weak [but] public construction is moving ahead quite nicely. As the declines in housing become less sharp, we can expect construction growth to improve.”
The Associated General Contractors of America, the largest and oldest national construction trade association in the United States, represents more than 32,000 general and specialty contracting firms. Another 13,000 service providers and suppliers are associated with the AGC. To learn more, visit www.agc.org.
The full Construction Spending report released today by the U.S. Commerce Department’s Bureau of the Census is available at www.census.gov.
