"The implication is that construction segments only indirectly supported by the stimulus package will continue to experience strong headwinds, while segments directly supported with stimulus money will become substantially more active." —ABC Chief Economist Anirban Basu
For the second month in a row, private nonresidential construction spending slipped – falling 1.2 percent in July – according to the September 1 report by the U.S. Census Bureau. On a year-over-year basis, private nonresidential construction spending is down 8.3 percent. Total nonresidential construction spending, including both private and public, fell by 1.0 percent from June and 2.6 percent from the same time last year to $703.8 billion. (See what this means below)
Just three subsectors increased on a monthly basis: water supply construction, up 4.0 percent, religious-related construction, up 1.4 percent and manufacturing construction, up 1.0 percent. From July 2008, manufacturing construction is up 46.5 percent, public safety-related construction is 14.8 higher and power construction is up 10.0 percent.
Subsectors with the largest losses in spending from June 2009 include lodging construction, down 8.3 percent, commercial construction, down 1.8 percent and power construction, down 1.8 percent. Subsectors posting the largest year-over-year declines include lodging construction, down 35.4 percent, commercial construction, down 32.4 percent and communication-related construction, down 20.1 percent.
Meanwhile, residential construction spending increased 2.3 percent from June, but is still down 26.9 percent from a year ago. Overall, total construction spending inched down 0.2 percent from June and is down 10.5 percent from July 2008.
What This Means
“The latest numbers tell us important things about the U.S. economy,” said Associated Builders and Contractors Chief Economist Anirban Basu. “More specifically, even though the stimulus package is now beginning to meaningfully impact the residential construction sector, the broader economy remains weak and credit remains tight.
“Prior to this month, construction related to power generation has been positive on a monthly basis, but the ongoing credit crunch has impacted the sector despite ongoing demand for new energy capacity,” said Basu. “Despite the monthly loss in activity, year-over-year power-related construction volumes are still up 10 percent. It may be, however, that low natural gas prices are also impacting construction volumes significantly.
“By contrast, water- and sewer-related construction, sectors that have been down for much of the past year, rebounded in July. This suggests that the stimulus package is steadily being translated into construction put-in-place,” said Basu. “This is also consistent with the latest reading of ABC’s Construction Backlog Indicator. The implication is that construction segments only indirectly supported by the stimulus package will continue to experience strong headwinds, while segments directly supported with stimulus money will become substantially more active."