Nonresidential Construction Spending Slips 0.2 Percent in October

"Construction volume may slip for several months before stabilizing and beginning a sustained recovery in earnest." —ABC Chief Economist Anirban Basu.

Despite a slight increase in total construction spending, nonresidential construction spending fell 0.2 percent in October to a seasonally adjusted annual rate of $551.2 billion, according to the Dec. 1 report by the U.S. Census Bureau. Total nonresidential construction spending is down 0.9 percent from October 2010.

Private nonresidential construction spending was up 1.3 percent for the month and is 8.4 percent higher than one year ago. In contrast, public nonresidential construction spending decreased 1.8 percent for the month, and is down 8.9 percent from the same time last year.

Only three of the sixteen nonresidential construction subsectors posted increases for the month, including conservation and development construction, up 6.5 percent; power construction, 5.1 percent higher; and office construction, up 1.3 percent. Four subsectors experienced increased spending from the same time last year: manufacturing construction, up 13.3 percent; power construction, 12.6 percent higher; commercial construction, up 10 percent; and educational construction, 2.6 percent higher.

Thirteen nonresidential construction subsectors experienced spending decreases in October, including health care construction, down 4.1 percent; lodging construction, 3.8 percent lower; and commercial construction, down 0.7 percent. Compared to October 2010, a majority of nonresidential construction subsectors posted decreases, including religious construction, down 18.9 percent; lodging construction, 17.3 percent lower; and sewage and waste disposal construction, down 16.4 percent.

Residential construction spending rose 3.2 percent for the month, and increased 0.6 percent during the past twelve months. Overall, total construction spending – which includes both nonresidential and residential – increased 0.8 percent in October, but is down 0.4 percent from the same time last year.

“The more things change, the more things stay the same,” said Associated Builders and Contractors Chief Economist Anirban Basu. “For months, the nonresidential construction industry has been characterized by rising levels of privately financed construction and declining levels of publicly financed construction.

“That is exactly the pattern that occurred in October, with privately financed construction rising 1.3 percent and publicly financed construction falling 1.8 percent,” Basu said. “The difference was in the highly varied performance of individual private construction segments.

“Power construction continues to lead the way and its impact in the industrial sector is gaining momentum,” said Basu. “However, many private segments have come to reflect the economic weakness experienced earlier this year, including communication, lodging and health care construction.

“It is quite likely that weakness in many privately financed construction segments will continue as a reflection of the soft patch that undermined economic process in early 2011,” Basu said. “Still, the rapid pace of economic progress presently being observed should translate into meaningful construction spending recovery some time next year.

“This, of course, presumes that the current pace of economic progress persists,” said Basu. “The construction outlook is a messy one, with the expectation being that construction volume may slip for several months before stabilizing and beginning a sustained recovery in earnest.”