Construction Spending Hits 2.5 Year Peak in May

Construction spending in May reached the highest level since December 2009 as widespread gains in private nonresidential construction, single-family and multifamily homebuilding more than offset a continuing downturn in public construction, according to an analysis of new federal data released by the Associated General Contractors of America. Association officials said they expect the disparity between private and public construction is likely to persist, although enactment of a federal highway and transit bill will cushion the decline in public spending.

“It is encouraging to see such a broad-based pickup in private construction,” said Ken Simonson, the association's chief economist. Simonson noted that private nonresidential spending climbed for the third month in a row and was 19 percent higher than in May 2011. Residential construction surged 3 percent for the month and 8 percent year-over-year, with new multifamily construction leaping 6 percent and 50 percent, respectively, and single-family homebuilding up 2 percent and 15 percent.

The construction economist said that four private nonresidential categories each posted 12-month spending increases of more than 25 percent: power and energy construction, 35 percent; hotels, 29 percent; educational and manufacturing, 27 percent apiece. There were also improvements in year-over-year totals for private transportation such as trucking and rail facilities, up 17 percent; health care and commercial (retail, warehouse and farm), 11 percent each; and office construction, 7 percent.

In contrast, public construction slumped for the fifth consecutive month, falling 4 percent below the May 2011 level, Simonson noted. He said the largest public category, highway and street construction, slipped 0.5 percent from April but edged up 2 percent year-over-year, while the second-largest segment, educational construction, fell 3 percent and 7 percent, respectively.

“Based on the number and variety of projects that have been announced in recent months, I expect the private nonresidential sector to keep posting hefty gains for the rest of 2012 and beyond,” Simonson predicted. “Apartment construction seems sure to remain strong as well. Single-family homebuilding is not as solid but has apparently passed its low point. Together, these categories should mean that total construction spending in 2012 will be positive for the year for the first time since 2007 despite ongoing weakness in public construction.

Association officials said the enactment of a federal highway and transportation bill that slightly increases spending over the next 27 months will keep public construction from falling further. But they urged Congress to include more funding for essential water and wastewater projects.

“Getting a highway and transit bill passed is a great first step,” said Stephen E. Sandherr, the association's chief executive officer. “Next, Congress should focus on keeping other forms of infrastructure from falling behind while enacting measures to support broader economic growth.”