Construction Spending Ekes Out a Gain in April

06/24/2013 by Bernard M. Markstein

Total Construction Spending and its Major Components
The U.S. Census Bureau reported that total construction spending inched up 0.4% in April to $860.8 billion at a seasonally adjusted annual rate (SAAR) following a 0.8% decline in March. Year-to-date not seasonally adjusted (NSA) construction spending was up 4.5% compared to the same period in 2012.

Nonresidential building construction was down for the second month in a row, falling 1.4% to $288.3 billion (SAAR) in April after decreasing 2.1% in March. Year-to-date spending was down 1.1% (NSA) from the same period in 2012.

Heavy engineering (non-building) construction spending rebounded 3.0% to $264.1 billion (SAAR) in April after dropping 2.2% in March. However, April’s gain was tempered by a large downward revision in the February and March numbers — $12.2 billion and $8.0 billion, respectively. This was 4.4% of the previously reported February number and 3.0% of the March number. With the revised spending numbers, year-to-date heavy engineering NSA spending was 1.4% lower than the same period in 2012.

Total residential construction spending, which includes improvements, edged down 0.2% in April to $308.3 billion (SAAR) after increasing 1.7% in March. The decline in spending was due to a sharp drop in improvements (-3.3%). New residential construction spending, which excludes improvements, rose 1.5% to $200.8 billion after advancing 2.5% in March. Year-to-date NSA total residential construction spending was up 17.5% and new residential construction was up 37.5% from the same period in 2012.

U.S. Total Construction Spending (billions of U.S. current dollars)
	Current Monthly (1) (latest actual values)			3-Month Moving Average			Year-to-Date (NSA)
	Feb-13	Mar-13	Apr-13	Feb-13	Mar-13	Apr-13	Jan-12 to Apr-12	Jan-13 to Apr-13
New Single-family	159.9	163.4	165.8	152.5	158.2	163.0	34.1	46.6
Month-over-Month % Change	5.7%	2.2%	1.4%	3.5%	3.7%	3.0%
Year-over-year % Change (NSA)	36.3%	39.6%	39.6%	32.2%	35.9%	38.6%	9.8%	36.9%
New Multifamily (2)	33.0	34.4	35.0	32.7	33.6	34.1	7.7	10.8
	-1.4%	4.3%	1.8%	2.7%	2.6%	1.5%
	36.7%	43.6%	38.3%	39.3%	40.8%	40.1%	10.9%	40.1%
New Residential (3)	192.9	197.8	200.8	185.3	191.8	197.2	41.8	57.4
	4.4%	2.5%	1.5%	3.4%	3.5%	2.8%
	36.4%	40.3%	39.4%	33.3%	36.8%	38.8%	10.0%	37.5%
Residential Improvements (4)	110.9	111.2	107.5	115.0	110.2	109.9	32.2	29.5
	2.2%	0.2%	-3.3%	-5.6%	-4.1%	-0.3%
	-8.6%	-4.6%	-9.1%	-4.9%	-8.1%	-7.5%	2.1%	-8.4%
Total Residential (5) (6)	303.9	309.0	308.3	300.3	302.1	307.1	74.0	87.0
	3.6%	1.7%	-0.2%	-0.3%	0.6%	1.7%
	17.2%	21.6%	17.1%	16.5%	17.7%	18.6%	6.4%	17.5%
Nonresidential Building	298.5	292.3	288.3	297.1	294.7	293.0	90.9	89.9
	1.8%	-2.1%	-1.4%	0.1%	-0.8%	-0.5%
	0.8%	-2.0%	-3.2%	0.4%	-0.4%	-1.5%	11.2%	-1.1%
Heavy Engineering (Non-Building)	262.3	256.4	264.1	274.8	263.5	260.9	74.9	73.8
	-3.4%	-2.2%	3.0%	-3.1%	-4.1%	-1.0%
	-2.7%	-4.2%	0.3%	5.2%	-2.1%	-2.1%	12.3%	-1.4%
Total (6)	864.7	857.7	860.8	872.2	860.2	861.1	239.8	250.7
	0.8%	-0.8%	0.4%	-1.0%	-1.4%	0.1%
	4.5%	4.6%	4.5%	6.7%	4.6%	4.6%	10.0%	4.5%
(1) Monthly levels are seasonally adjusted at annual rates (SAAR figures). (2) New Multifamily = New Private Multifamily + New Public Multifamily – Public Improvements (estimated by Reed Economics) (3) New Residential = New Single-family + New Multifamily (4) Residential Improvements include remodeling, renovation and replacement work. Number also includes RCD estimate of improvements to public housing. (5) Total Residential = New Single-family + New Multifamily + Residential Improvements. (6) Total may not equal the sum of its components due to rounding. Source: Census Bureau, U.S. Department of Commerce.

Total public construction spending fell 1.2% at a seasonally adjusted (SA) in April after tumbling 2.9% in March. Year-to-date NSA public construction spending was 4.8% lower than the same period in 2012.

Total private construction spending increased 1.0% in April after virtually no change in March (up 0.1%). Year-to-date NSA private construction spending was 8.9% higher than in 2012.

Public and Private Construction Spending (billions of U.S. current dollars)
	Monthly Figures (1) (latest actual values)			3-Month Moving Average			Year-to-Date (NSA)		Annual
	Feb-13	Mar-13	Apr-13	Feb-13	Mar-13	Apr-13	Jan-12 to Apr-12	Jan-13 to Apr-13	2010	2011	2012
Private Spending	595.0	595.9	602.0	604.2	594.6	597.6	163.8	178.3	500.6	495.0	578.8
Month-over-Month % Change	0.4%	0.1%	1.0%	-1.3%	-1.6%	0.5%
Year-over-year % Change (NSA)	8.6%	9.3%	9.0%	12.3%	8.9%	9.0%	17.6%	8.9%	-14.9%	-1.1%	16.9%
Public Spending	269.7	261.8	258.8	268.0	265.6	263.4	76.0	72.4	304.0	283.3	275.7
	1.7%	-2.9%	-1.2%	-0.6%	-0.9%	-0.8%
	-4.2%	-5.6%	-5.0%	-5.1%	-4.8%	-5.0%	-3.4%	-4.8%	-3.5%	-6.8%	-2.7%
Total Federal Spending	23.3	23.0	23.0	24.0	23.4	23.1	8.2	7.2	31.1	30.4	25.5
	-2.3%	-1.3%	-0.1%	-1.8%	-2.5%	-1.2%
	-15.1%	-17.4%	-9.3%	-13.8%	-13.6%	-14.0%	-11.0%	-12.5%	9.5%	-2.4%	-16.1%
Federal Nonresidential Spending	21.8	21.1	21.3	22.4	21.7	21.4	7.7	6.6	28.4	27.9	23.9
	-1.8%	-3.2%	1.1%	-2.1%	-3.1%	-1.3%
	-14.9%	-19.0%	-10.0%	-13.8%	-14.3%	-14.8%	-9.3%	-13.2%	8.5%	-1.9%	-14.2%
Federal Residential Spending	1.5	1.9	1.7	1.6	1.7	1.7	0.5	0.5	2.7	2.5	1.6
	-8.5%	26.8%	-13.4%	2.3%	7.2%	0.1%
	-18.6%	7.9%	-0.8%	-14.3%	-3.0%	-3.9%			21.1%	-7.8%	-37.0%
Total State & Local Spending	246.3	238.8	235.8	244.0	242.2	240.3	67.8	65.2	272.8	252.9	250.2
	2.1%	-3.1%	-1.3%	-0.5%	-0.7%	-0.8%
	-2.8%	-4.1%	-4.6%	-4.0%	-3.7%	-3.9%	-1.8%	-3.9%	-4.8%	-7.3%	-1.1%
State & Local Nonresidential Spending	242.0	233.9	231.0	239.4	237.6	235.6	66.3	63.8	265.3	246.7	245.2
	2.2%	-3.4%	-1.2%	-0.3%	-0.8%	-0.8%
	-2.3%	-4.1%	-4.6%	-3.6%	-3.4%	-3.7%	-1.3%	-3.7%	-5.5%	-7.0%	-0.6%
State & Local Residential Spending	4.3	4.9	4.8	4.6	4.6	4.7	1.6	1.4	7.6	6.2	5.0
	-5.6%	14.0%	-2.3%	-6.8%	0.5%	1.7%
	-21.9%	-1.3%	-2.3%	-19.7%	-15.2%	-8.6%	-20.2%	-11.9%	31.3%	-17.9%	-19.5%
Monthly levels are seasonally adjusted at annual rates (SAAR figures). Source: Census Bureau, U.S. Department of Commerce.

The Economy
Employment continues to show slow, but steady gains. Nonfarm SA payroll employment added 175,000 jobs in May following an increase of 149,000 jobs in April and 142,000 jobs in March. On the negative side, April employment gains were revised down by 16,000 jobs from the previously reported 165,000 jobs. Year-to-date employment gains have averaged 189,000 jobs per month, a reasonable, if unspectacular pace.

SA construction employment rebounded in May, adding 7,000 jobs, after losing 2,000 jobs in April — originally reported as a loss of 6,000 jobs. The NSA construction unemployment rate for May was 10.8%, down from 14.2% in May 2012.

The amazing U.S. economy continues on a moderate growth path despite several challenges. Increased Social Security taxes since the beginning of the year due to the end of a two year tax holiday and decreases in government spending have created fiscal drag, slowing growth. The negative impact of sequestration (the across the board cuts to much of federal spending) on the economy is growing. Recession in much of Europe, a drag on our exports, is yet another impediment to growth.

Going forward, the economy faces several risks that would slow growth or possibly push the economy into recession. These include likely battles over funding federal government operations beyond the end of the current fiscal year on September 30, 2013 and over increasing the federal debt ceiling, which will become an issue sometime in the fall or early winter.

There are some positives at work to maintain or increase economic growth. Among these are historically low interest rates, the improved consumer balance sheet, pressure on many companies to hire and to invest, and continued improvement in the housing market.

Weighing the various forces and risks, the Reed forecast for construction activity assumes continued moderate economic growth.

Risks to the Economy and the Forecast
Major risks to the economy include:

• Additional, sharp reductions in government spending in the short term
• Failure to fund federal government operations
• Federal debt approaches the debt ceiling in the fall with no plans to raise the debt ceiling in sight
• Sovereign debt default by one or more European governments
• One or more European governments abandon the euro
• A sudden, significant increase in oil prices for a prolonged period

If any one of these events occurs, economic growth will be reduced and the probability of recession will be increased. The result will also be lower construction spending than currently forecast by Reed.

The Forecast
The Reed forecast assumes that the above risks are avoided. Total construction spending is forecast to grow 3.4% this year, due to continued strong growth in new residential construction, and 9.5% in 2014. The forecast assumes that nonresidential building construction is near the end of its retrenchment and will pick up strength soon, improving in the second half of this year and throughout next year. Heavy engineering (non-building) construction is already showing signs of turning the corner and should produce moderate growth the remainder of this year and through next year. The main impediment to stronger performance in the sector is lack of public funding from the federal government on down.

U.S. Total Construction Spending (billions of U.S. current dollars)
	Actual				Forecast
	2009	2010	2011	2012	2013	2014
New Single-family	105.3	112.6	108.2	129.3	169.1	196.6
Year-over-year % Change	-43.3%	6.9%	-3.9%	19.5%	30.8%	16.3%
New Multifamily (1)	35.9	24.1	22.6	27.2	36.6	42.1
	-30.0%	-32.9%	-6.0%	20.4%	34.2%	15.0%
New Residential (2)	141.2	136.7	130.8	156.5	205.6	238.7
	-40.4%	-3.2%	-4.3%	19.6%	31.4%	16.1%
Residential Improvements (3)	112.7	112.5	114.9	125.6	111.2	121.7
	-6.6%	-0.2%	2.2%	9.3%	-11.5%	9.5%
Total Residential (4) (5)	253.9	249.1	245.7	282.0	316.8	360.4
	-29.0%	-1.9%	-1.4%	14.8%	12.3%	13.8%
Nonresidential Building	375.7	290.4	283.1	299.1	298.1	321.2
	-14.2%	-22.7%	-2.5%	5.6%	-0.3%	7.8%
Heavy Engineering (Non-Building)	273.5	265.0	249.4	273.4	268.7	285.8
	0.5%	-3.1%	-5.9%	9.6%	-1.7%	6.4%
Total (5)	903.2	804.6	778.2	854.5	883.6	967.5
	-15.4%	-10.9%	-3.3%	9.8%	3.4%	9.5%
(1) New Multifamily = New Private Multifamily + New Public Multifamily – Public Improvements (estimated by Reed Economics) (2) New Residential = New Single-family + New Multifamily (3) Residential Improvements include remodeling, renovation and replacement work. Number also includes RCD estimate of improvements to public housing. (4) Total Residential = New Single-family + New Multifamily + Residential Improvements. (5) Total may not equal the sum of its components due to rounding. Source: Census Bureau, U.S. Department of Commerce. Forecast: Reed Construction Data.