Private NonResidential Construction Hits All-Time High in May

Private nonresidential construction spending hit an all-time high in May, according to the July 1 construction spending report by the U.S. Department of Commerce. On a monthly, seasonally- adjusted basis, private nonresidential construction spending topped off at a record $405.3 billion, a 0.2 percent increase from the previous month. However, total construction spending declined by 0.4 percent in May compared to April driven by falling residential construction spending. In contrast, overall nonresidential construction spending has continued to rise slightly with an increase of 0.3 percent in May from the previous month, and an increase of 11.6 percent since May 2007. Total nonresidential construction, both public and private, has continued setting record highs reaching $699 billion in May, up $2 billion from the previous month.

Of the 16 reported nonresidential sectors, 12 produced year-over-year gains, with the largest growth in lodging (35.7 percent), followed by manufacturing (34.2 percent), power (27.1 percent) and public safety (23.9 percent). Four nonresidential segments experienced reduced construction spending activity over the past 12 months. These were religious construction (down 9.5 percent), water supply construction (down 4.0 percent), conservation development (down 3.8 percent) and communication (down 0.8 percent). On a monthly basis, 8 of 16 nonresidential subsectors reported increased spending.

Total construction spending, both nonresidential and residential, was $1.085 trillion in May on a seasonally-adjusted, annualized basis. This represents a 5.1 percent decrease since the beginning of 2008 and a 6 percent drop since May 2007.

What’s New
According to Associated Builders and Contractors, the nonresidential construction spending data remains inconsistent with the country’s broader economic weakness. The slumping U.S. economy has yet to become apparent in nonresidential construction spending. In fact, several of the forces that have produced a weaker U.S. economy are actually stimulating nonresidential construction, including the power and manufacturing sectors. Driven by high and continually rising energy prices, together with a lack of investment in prior decades, there are now a growing number of opportunities for industrial contractors.

Similarly, a weaker U.S. dollar, which has hampered consumer spending and has exasperated inflationary expectations, has produced a new demand for the construction of manufacturing facilities among goods producers in America’s domestic market. In addition, several massive power generating facility projects are now underway in various parts of the U.S., and as a result, the nonresidential construction spending level may remain steady. However, certain cyclical nonresidential segments remain vulnerable in the near term, including lodging, office and retail construction.