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Economy in Brief

U.S. Construction Spending Improvement Due to Nonresidential & Public Sector Gains
by Tom Moeller May 4, 2009

Regrettably, recent gains in the value of construction spending have been limited, small and tenuous. The value of construction put-in-place unexpectedly increased 0.3% during March following five consecutive months of decline in excess of 3% each month. Consensus expectations had been for a 1.5% drop.

A 2.0% jump in the value of nonresidential building activity accounted for much of the March surprise. The collapse of corporate profits, however, has dropped the y/y gain to just 1.7% after double-digit increases during the prior three years. The March increase reflected gains in the lodging (-5.1% y/y), commercial (-20.5 y/y), health care (+3.9% y/y), and educational (5.4% y/y) sectors.

Public construction also was strong during March and posted a 1.1% increase. The recession's effect on tax revenues, however, seems to be taking hold. The small 2.6% year-to-year increase in the level of activity for March left the first quarter's level just equal to the 2008 average. The value of spending on transportation facilities did rise 1.7% in March but it was down 6.0% year-to-year while spending on highways & streets fell 0.8% (-2.2% y/y) and was down for the fourth straight month. The value of construction on highways & streets is roughly one-third of the value of total public construction spending.

The value of residential building activity continued down hard and it posted a 4.2% decline, off by one-third over the last year. Notably hard hit has been single-family construction activity which fell 8.6% in March and is off by one-half during the last twelve months. Building activity on multi-family units has held up relatively well and posted a March decline of just 1.1% (-13.7% y/y). Spending on improvements fell 1.0% (-13.1% 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.

The more detailed categories of construction 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.

The construction put-in-place figures are available in Haver's USECON database.

Construction (%) March February Y/Y 2008 2007 2006
Total 0.3 -1.0 -11.1 -5.7 -2.7 6.3
Private -0.1 -2.1 -16.3 -9.8 -6.9 5.5
  Residential -4.2 -5.9 -34.0 -27.7 -19.8 1.0
  Nonresidential 2.7 0.7 1.2 14.9 19.6 16.2
Public 1.1 1.3 2.6 6.7 12.3 9.3
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