Nonresidential Construction Spending Dips in December 2010

"The question becomes whether the data indicate an end to a short period of recovery, or whether the recovery was temporarily halted by snow and cold temperatures." —ABC Chief Economist Anirban Basu.

Blame it in part on the bad weather, total nonresidential construction spending – which includes both privately and publicly financed construction – dipped 1.6 percent in December 2010, and is down 6.4 percent from December 2009. This, according to the February 1 construction spending report by the U.S. Census Bureau. Total nonresidential construction spending totaled $552.2 billion in December on a seasonally adjusted annual rate.

Meanwhile, private nonresidential spending slipped 0.5 percent in December following three straight months of increases, and is down 12.3 percent from the same time one year ago.

Thirteen construction subsectors experienced monthly decreases in spending, including conservation and development, dropping 17.1 percent; religious, down 6.5 percent; and public safety-related construction, down 6.4 percent. Year-over-year, those construction subsectors posting the largest decreases include lodging, down 44.1 percent; office, down 25.7 percent; and manufacturing, down 24.6 percent.

Only three of the sixteen construction subsectors posted increases in December. They are power, up 2.1 percent; communication, up 1.6 percent; and transportation, up 0.7 percent. Six subsectors finished the year higher in terms of construction spending including power, up 13 percent; highway and street, up 7.6 percent; and amusement and recreation, up 4.4 percent.

Public nonresidential construction fell for a second consecutive month, down 2.6 percent in December and 0.5 percent year-over-year. Residential construction spending fell 4.4 percent for the month and 6.3 percent from the same period one year ago. Total construction spending – which includes both residential and nonresidential – dropped for the third straight month, down 2.5 percent in December 2010 and down 6.4 percent from December 2009.

“Without a doubt, the nation’s weather played a role in shaping the December construction spending data,” said Associated Builders and Contractors Chief Economist Anirban Basu. “Prior to December, private nonresidential construction spending was rising in America. However, the question becomes whether the data indicate an end to a short period of recovery, or whether the recovery was temporarily halted by snow and cold temperatures.

“There is evidence to suggest that the impact of federal stimulus spending is steadily exiting the construction spending data. For instance, the largest monthly decline among the sixteen nonresidential construction sectors was in conservation and development, a segment closely related to federal spending and investment,” said Basu.

“Public safety-related spending also declined sharply in December, which may reflect sharp cuts in state and local government spending. In other words, the outlook for publicly financed construction is dimming and the December data fit neatly with that outlook,” Basu said.

“The construction segment with arguably the brightest outlook going forward is power. With oil prices above $90 a barrel, there is reason to believe that power will be a bright spot for nonresidential construction spending this decade,” said Basu. “In addition, there remains a large amount of deferred maintenance to be completed within the nation’s power industry, which suggests that 2011 construction spending in that economic segment will expand.”