“The economic improvement that we had observed through March of this year has translated into better privately financed construction activity.” —ABC Chief Economist Anirban Basu.
Despite a downturn in overall construction spending, private nonresidential construction spending increased 1.2 percent in May, according to the July 1 report by the U.S. Census Bureau. However, private nonresidential construction is down 5.1 percent from the same time last year. Total nonresidential construction spending – which includes both privately and publicly financed construction – was $516.1 billion in May, up 0.1 percent for the month but down 6.9 percent from May 2010.
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Eight of the sixteen nonresidential construction subsectors posted increases in spending in May, with the biggest gains experienced in power, up 3.6 percent; sewage and waste disposal, 3.6 percent higher; conservation and development, up 3.5 percent; and lodging, up 2.8 percent. Compared to the same time last year, only three subsectors posted gains, including power construction, up 9.9 percent; conservation and development, 3.8 percent higher; and commercial construction, up 0.1 percent.
In contrast, eight subsectors experienced decreases for the month, including religious construction, down 3.8 percent; communication, 2.6 percent lower; and educational construction down 2.6 percent. The three subsectors with the largest year-over-year losses are religious construction, down 25.5 percent; lodging, down 25.1 percent lower; and manufacturing, down 19.4 percent.
Public nonresidential construction spending slipped 0.8 percent in May and is down 9.1 percent year-over-year. Residential construction spending fell 2.1 percent for the month and is down 6.9 percent from the same time last year. Overall, total construction spending – which includes both nonresidential and residential construction – was down 0.6 percent from April and down 7.1 percent compared to May 2010.
“Today’s release is quite revealing,” said Associated Builders and Contractors Chief Economist Anirban Basu. “Clearly, the economic improvement that we had observed through March of this year has translated into better privately financed construction activity. Private nonresidential construction spending expanded in May even as public nonresidential construction declined and the nation’s housing sector continues to swoon.
“One of the most interesting developments is the increase in construction spending related to lodging, arguably the nonresidential construction segment most affected by the economic downturn and associated credit crunch,” said Basu. “Though the year-over-year loss in lodging construction activity is still large, it is falling as monthly data steadily improve.
“Commercial construction is up slightly from the same time last year, another indication of improved private construction activity,” Basu said. “However, it is quite likely that the recent slowing in economic growth will at least temporarily interrupt the private construction recovery currently being observed. Moreover, it is likely that the impact of rising construction materials prices earlier this year are not yet fully reflected in today’s construction spending report, and this also may serve to stall current momentum.