Construction Spending Increases in October

Construction spending increased for the third straight month in October as private activity strengthened while public spending shrank, the Associated General Contractors of America reported in an analysis of new Census Bureau data. Association officials cautioned that further declines in public sector activity may soon swamp gains in homebuilding and private nonresidential investment.

“The apparent stability in construction spending data is masking conflicting trends,” said the association's chief economist, Ken Simonson. “On one hand, private investments in construction are slowly accelerating, while public sector investments are declining at an even faster rate.”

Simonson noted that total construction spending ticked up by 0.8 percent from September to October and inched down just 0.4 percent over the past year. He added that investments in private nonresidential construction increased by 1.3 percent for the month and 8.4 percent compared with October 2010. Private residential construction posted increases of 3.4 percent and 1.7 percent, respectively. In contrast, public spending declined by 1.8 percent last month and 9.4 percent from a year earlier.

The construction economist added that several private nonresidential segments have recorded double-digit year-over-year gains, led by power construction (power plants, renewable energy, transmission lines, and oil and gas projects), which climbed 5.8 percent in October and 18 percent over 12 months. The second-largest private nonresidential segment — commercial construction (retail, warehouse and farm) — was up 0.4 percent for the month and 12 percent from a year earlier. Next in size was manufacturing construction, down 0.4 percent for the month but up 14 percent year-over-year.

“I expect further gains in power, energy, manufacturing and distribution facilities in 2012,” Simonson remarked. “Apartment construction should also be strong. But these positives will barely offset the drop-off in public spending.” He noted that the two largest public categories, highways and educational construction, had each fallen about 6 percent between the first 10 months of 2010 and the same period in 2011. In addition, public spending on sewage and waste disposal is down 13 percent year-to-date and water supply is down 8 percent.

Association leaders said that Washington's failure to enact years-late surface transportation, aviation and water infrastructure legislation was contributing to the decline in public sector construction spending. Without those long-term programs in place, it is becoming increasingly difficult for state and local officials to plan major infrastructure upgrades, they added.

“Washington's failure to act on key infrastructure legislation is threatening to undermine the long-awaited construction recovery,” said Stephen E. Sandherr, the association's chief executive officer. “With the stimulus nearly complete, the federal government has gone from propping up the industry to holding it back.”