Construction Spending Declines Second Month in a Row; Down 0.6 Percent in August

"While plenty of financial capital is potentially available to move construction projects forward, there remains a lack of capital willing to invest itself in risky economic endeavors." —ABC Chief Economist Anirban Basu.

Construction spending has fallen for the second consecutive month, dipping 0.6 percent in August, according to the U.S. Census Bureau. However, spending is up 6.5 percent from one year ago.

Nonresidential construction spending fell 1.3 percent to a seasonally adjusted annual rate of $557.2 billion. Year-over-year, nonresidential construction spending is up 2.2 percent.

Private nonresidential construction spending declined 1.7 percent for the month, but remains 7.2 percent higher than one year ago. Public nonresidential construction spending slipped 0.9 percent in August and is down 2.7 compared to the same time last year.

Construction subsectors posting the largest monthly decreases in spending include communication, down 3.4 percent; power, down 3 percent; and educational, down 2.9 percent. The largest year-over-year decreases in spending were experienced in conservation and development, down 25.6 percent; water supply, down 12.8 percent; religious, down 11.8 percent; and communication, down 4.4 percent.

Only three of sixteen nonresidential construction subsectors posted increases in spending for the month, including public safety, up 3.3 percent; sewage and waste disposal, up 2.4 percent; and health care, up 0.4 percent. Eight subsectors have registered increases in spending on a year-over-year basis, including lodging, up 30.3 percent; power, up 11.5 percent; manufacturing, up 6.3 percent; and transportation, up 4.3 percent.

Residential construction spending increased 0.9 percent for the month and is 16.1 percent higher than August 2011.

"Once again, private investment in nonresidential construction declined,” said Associated Builders and Contractors Chief Economist Anirban Basu. “Despite the fact the nation is in its fourth year of economic recovery, sustained momentum remains elusive.

“While plenty of financial capital is potentially available to move construction projects forward, there remains a lack of capital willing to invest itself in risky economic endeavors,” Basu said. “The reluctance to invest in construction has been growing as the nation moves closer to falling off its fiscal cliff. Since near-term resolution is unlikely, the expectation is that the next few months also will be soft.

“In previous months, there had been a well-established pattern of private construction spending gains offset by public construction spending losses,” said Basu. “That pattern has not been in place for the past three months. In June, private construction slipped 1.5 percent. One month later, monthly spending fell 0.5 percent. August represents the third consecutive month of private spending decline.

"The ongoing declines in private construction are especially important in the context of constraints on public construction,” Basu said. “State and local government budgets continue to wrestle with the aftermath of the Great Recession, as well as with issues pertaining to underfunded pensions and federal mandates.

“Federal spending also remains constrained and is unlikely to bolster nonresidential construction activity in the near-term,” said Basu.