Cross-Cutting Trends Are Apparent, AGC Economist Says
"Construction held up well in February despite bad weather and growing caution among businesses and consumers," said Kenneth D. Simonson, Chief Economist for Associated General Contractors of America (AGC), the nation's leading construction trade association. "The total value of construction put in place, as reported by the Census Bureau, was just 0.2% below the revised January total and the February 2002 figure."
The February number, $872 billion seasonally adjusted at annual rates, reflected an 0.6% climb in private residential construction from January, an 0.3% uptick in private nonresidential building construction, and a 2.9% drop in public construction. Compared to February 2002, private residential was up by 10%, private nonresidential buildings were down by 13%, and public construction was off by 5%.
"The contrast among the three subsectors and between the monthly and yearly figures is striking and points to several cross-cutting trends," Simonson said. "Housing is still robust but appears to be cooling off a bit compared to a year ago. In contrast, nonresidential construction may finally be leveling off after a long, steep dive. Public construction appears to have topped out and will contract as budget deficits force cuts."
Simonson remarked, "It is noteworthy that several nonresidential categories performed well for the month, even though only one -- hospital and institutional -- was up compared to February 2002.
"Among detailed categories, communications construction plunged 8.5% and office construction 5% for the month, an even steeper rate of decline than their 25% drops from a year ago. But electric power plant construction was up for the second straight month, by 3.6% and manufacturing construction slipped just 0.4%, much better than their year-over-year declines of 15% and 28%.
"Warehouse construction also posted two gains in a row, rising 5% last month, but it was still down 25% from a year ago. Health care construction grew more than 3% for the month and nearly 13% compared to February 2002."
He added, "I expect manufacturing and warehouse construction to remain pretty flat for the next several months. Office building will probably slip further as vacancy rates and layoffs are still rising. Health care will remain strong, and commercial construction, which edged down 0.1% for the month, will probably bob around its current level.
"Overall, private nonresidential construction is running more on momentum from projects not yet finished than on optimism about an early upturn in the economy."
As for state and local construction, Simonson commented that "the two biggest categories, educational and highway and street, both had a bad month, down 4% and 9%. But I think both will be level or up a bit for the year as a whole. While colleges are cutting back, local elementary and secondary school districts are being helped by recent bond approvals and higher property tax receipts. And highway spending will benefit from the recent federal appropriations bill, which kept federal passthroughs even with last year."