Strong Construction Spending Rebound in April as Stimulus Funding & Residential Construction Drive Demand

2.7 Percent Increase in Spending Represents Largest Monthly Increase in 10 Years

Construction spending rebounded strongly in April, with an increase of 2.7 percent or $23 billion from March to a seasonally adjusted annual rate of $869 billion according to the latest analysis of federal spending figures released today by the Associated General Contractors of America. The association noted that the gains were primarily driven by private residential construction (up 4.4 percent) and public construction (up 2.4 percent), but that private nonresidential also increased significantly (up 1.7 percent).

“The stimulus is clearly driving one of the biggest increases in construction spending the industry has experienced in a long time,” said Ken Simonson, chief economist for the construction trade association. “Once you look beyond the stimulus, however, these figures show how uneven and fragile the construction recovery remains.”

Simonson noted that the stimulus drove significant increases in a range of public construction categories. For example, compared to March, 2010, spending on public drinking water supply facilities jumped 7.9 percent; public sewage treatment, 3.9 percent; and highway construction 3.6 percent. Spending on other public transportation modes was flat for the month but soared 29 percent compared to April 2009. In contrast, public educational construction spending, which received little stimulus support, only edged up 0.4 percent for the month and was 18 percent lower than a year earlier.

Private nonresidential spending was boosted by strong gains in private power construction ($3.9 billion, 5.2 percent for the month); manufacturing ($1.5 billion, 2.7 percent); and communication ($1.3 billion, 7.3 percent). Meanwhile, developer-financed categories, which are plagued by high-vacancy rates and tight credit conditions, continued to tumble. Private lodging construction rose 0.8 percent for the month but was down 61 percent compared to April 2009; commercial (retail, warehouse and farm) was down 2.9 percent and 37 percent; and private office was down 1.7 percent for the month and 36 percent for the year.

Private residential construction figures were also mixed, Simonson commented. New single-family construction climbed 3.4 percent for the month and 29 percent year-over-year, and improvements to existing single- and multi-unit construction rose 6.3 percent and 4 percent from a year earlier. But new multi-family construction — condos and rental buildings, which are developer-financed —slumped 1.9 percent in April and 57 percent compared to a year ago.

“Assuming the economy continues to expand, privately-funded construction should experience a rebound starting in 2011,” Simonson noted. “But for now stimulus funding remains the main source of support for nonresidential contractors.”