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Economy in Brief

U.S. Construction Spending Slipped; Nonresidential Activity Slackened
by Tom Moeller April 1, 2008

The value of construction put in place slipped 0.3% during February and January was revised to less of a decline of 1.0%. The latest decline was the fifth consecutive monthly drop and the level was 8.5% below the March 2006 peak.

The value of nonresidential building activity ticked down 0.1% after a 1.0% January decline which was half that reported initially. Momentum here recently has diminished substantially. Three month growth in activity is -5.3%. Education facility building slipped 0.2% (+17.3% y/y) after a 2.4% January surge. Spending in the factory sector rose 2.7% (27.4% y/y) and made up a revised 1.6% decline in January. Office construction fell 2.2% (+6.4% y/y) and commercial construction rose 2.6% (2.1% y/y).

The value of residential building activity fell another 0.9%. Construction activity on new single family units collapsed an additional 5.7% (-33.6% y/y). Building activity on multi-family units also slipped 0.3% (-18.5% y/y) but spending on improvements surged 5.1% (8.8% y/y).

During the last twenty years there has been an 84% correlation between the q/q change in the value of residential building and its contribution to growth in real GDP.

Public construction spending rose a slight 0.4% for the second month. Construction on highways & streets rose 0.9% (3.7% y/y) after a very much upwardly revised 0.5% January increase. The value of construction on highways & streets is nearly one third of the value of total public construction spending. Building activity of educational facilities slipped 0.2% (+15.0% y/y).

These more detailed categories represent the Census Bureau’s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.

Construction February January Y/Y 2007 2006 2005
Total -0.3% -1.0% -3.5% -2.7% 5.6% 10.7%
Private -0.5% -1.5% -7.1% -6.8% 4.7% 12.0%
  Residential -0.9% -1.9% -18.8% -18.1% 0.5% 13.7%
  Nonresidential -0.1% -1.0% 13.2% 18.0% 15.2% 7.8%
Public 0.4% 0.4% 8.2% 12.2% 9.2% 6.2%
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