Year-Over-Year Gains in Private Construction Outweigh Public Sector Cuts

Construction spending in February topped year-ago totals by 5.8 percent as a double-digit increase in private construction offset a small drop in public sector spending, according to a new analysis of federal data released by the Associated General Contractors of America. The gains occurred despite a 1.1 percent decrease in spending from January to February and a dip of 0.8 percent the month before, based on revised data.

“It is heartening to see that nearly all private residential and nonresidential segments exceeded their February 2011 levels this February and that the decline in public construction has moderated from the steep pace of early last year,” said Ken Simonson, the association's chief economist. “The improvement is too widespread to be attributable just to favorable weather comparisons.”

Simonson commented that private nonresidential spending had an especially strong year-over-year gain, rising 14 percent from February 2011 to February 2012, although spending sank 1.6 percent from January to February. He noted that the biggest increases were in the two largest private nonresidential categories—power construction, which includes shale-related activity as well as traditional and renewable electric power (-2.1 percent for the month, +24 percent over 12 months)—and manufacturing (+1.7 percent for the month, +40 percent over 12 months).

The economist added that there were year-over-year increases in all three categories of private residential spending, which was 5.6 percent higher than in February 2011 and essentially unchanged from January's revised level. New single-family construction posted a 4.2 percent year-over-year rise although it slipped 1.5 percent for the month, possibly because mild December and January weather “pulled forward” construction that normally begins in February. New multifamily construction was up 26 percent from the previous February and 2.0 percent from January. Spending on residential improvements moved up 4.5 percent year-over-year and 1.2 percent for the month.

Simonson noted that public construction spending declined 1.4 percent in February from a year earlier and 1.7 percent from January. The two largest public categories showed similar results. Highway and street construction, the largest public category, edged up 0.4 percent year-over-year but fell 2.6 percent for the month. Educational spending rose 0.8 percent over 12 months but dropped 2.5 percent from January to February.

Association officials warned that public construction spending may soon decline more sharply, unless lawmakers provide adequate funding for transportation and other infrastructure needs. They said the fact that Congress has failed to enact a host of long-term infrastructure and tax measures was making it hard for many firms to make business investment and hiring decisions.

“Once again, Congress has left contractors and states without the certainty they need to make long-run highway construction plans,” said the association's chief executive officer, Stephen E. Sandherr. “The latest 90-day extension of highway funding means vitally needed long-term capacity additions and reconstruction projects remain in limbo.”