Construction Rallies as Industry Spending Increases by 1.4% in March to a Seasonally Adjusted Annual Rate of $769 B

Construction Economist Cites Increases in Most Nonresidential Segments, Predicts Future Private Sector Increases, Cautions Public Sector Spending is Likely to Decline

Construction spending bounced back from an 11-year low in March, increasing by 1.4 percent to a total seasonally adjusted annual rate of $769 billion, according to an analysis by the Associated General Contractors of America of new Census Bureau data released today. Association officials cautioned however that the industry remains weak, noting that total construction spending remains 6.7 percent lower than a year ago and 37 percent lower than the March 2006 peak.

“It is encouraging to see increases in construction spending across most nonresidential categories in March,” said Ken Simonson, the association's chief economist. “Considering how much construction spending has declined during the past five years, however, we are still a long way from anything that can be labeled a recovery.”

Spending on lodging increased the most in March, up 6.1 percent for the month while down -31 percent for the year, followed by manufacturing (5.2 percent for the month, -28 percent for the year) and health care (2.4 percent for the month, -3.2 percent for the year.) Simonson pointed out, however, that spending on only two of the 10 largest nonresidential categories was higher in March 2011 than in March 2010: highways and streets, up 0.6 percent for the month and 4.9 percent over 12 months; and power construction, up 1.8 percent for the month and 3.9 percent over 12 months.

Simonson predicted that spending on certain private construction sectors was likely to increase over the coming months, but that publicly-funded construction activity was likely to decline. “I expect we"ll see improvements in the next few months in manufacturing, warehouse, hospital and data-center construction, but these gains may not offset declines in school and other public construction,” he said.
Simonson noted that residential construction appeared to rise by a strong 2.6 percent in March but that the gain was attributable only to the extremely volatile number for improvements to existing housing, which climbed 6.9 percent for the month. New single-family spending dropped -1.0 percent in March and -9.4 percent over 12 months, while multifamily construction slipped -2.2 percent and -13.2 percent, respectively.

Association officials said the new spending figures reflect cuts in local, state and federal public investments in infrastructure. They noted, for example, that public sector spending on transportation is down -11.1 percent for the year. They added that investments in public safety facilities has declined by 15.6 percent while investments in sewage and waste disposal declined by -7.9 percent since March 2010.
“Delaying infrastructure maintenance while deferring debate on out of control entitlement spending is no way to balance the budget, but it is a good way to lose the future,” said Stephen E. Sandherr, the association's chief executive officer.