Construction Spending Drops but Remains Above 2011's Rate

Construction spending declined between July and August to an annualized rate of $837 billion, but increased compared to August 2011, according to an analysis of new federal data released today by the Associated General Contractors of America. Association officials noted that growing demand for residential, lodging and education construction offset drops in public construction spending.

“The construction industry has definitely lost some of the momentum it had earlier this year,” said Stephen E. Sandherr, the association's chief executive officer, noting that construction spending has now declined for two months in a row. “With the exception of the lodging sector, many businesses are retreating from the levels of construction spending we saw in the spring and early summer.”

Sandherr noted that total construction spending declined 0.6 percent for the month but was up 6.5 percent from August 2011 to August 2012. Private residential spending continues to strengthen, increasing by 0.9 percent compared to July and up 17.8 percent during the past 12 months. Private nonresidential construction, however, declined by 1.7 percent for the month, but remains up 7.2 percent for the year. Public construction slid further, declining 0.8 percent in August and 3.5 percent year-over-year.

Within the private sector, multi-family construction experienced the largest monthly and annual gains, increasing by 3.7 percent for the month and 44.8 percent for the year. Single-family construction also surged, up 2.8 percent for the month and 20.8 percent for the year. Lodging and education construction experienced the highest rate of annual growth within the private nonresidential sector, up 33.7 and 22 percent respectively, even as spending on the two segments declined by 0.1 and 0.9 percent for the month.

Power and energy construction—the largest private nonresidential type—fell for the sixth month in a row in August, by 3.7 percent compared with July, but the total still rose 12.3 percent from a year ago, thanks in part to oil and gas activity. Manufacturing construction also declined for the month, down 0.7 percent, yet remains 6.1 percent higher compared to August 2011.

Public construction continues to decline as local and state governments struggle to balance budgets and one-time federal programs like the Base Realignment and Construction (BRAC) and stimulus programs wind down, Sandherr noted. He added that highway and street construction spending inched down 0.6 percent in August but was up 3.6 percent year-over-year, while educational construction spending decreased 3.4 percent and 7.0 percent respectively.

Sandherr said construction activity was likely to stagnate until Congress and the administration can agree on spending and tax rates for next year and beyond.