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Construction Slips in May But Data Revisions Show Industry Was Stronger than Suspected, AGC Economist Says

“Construction put in place continued to lose steam in May but is still ahead of the pace in 2002,” said Kenneth D. Simonson, chief economist for the Associated General Contractors of America (AGC), the nation’s leading construction trade association. “Dual data series from the Census Bureau, plus sharp revisions to past numbers, make the current picture murkier than usual but show there are still areas of strength in nonresidential construction.”

Simonson was referring to today’s release by the Census Bureau of data on the value of construction put in place in May 2003, along with revisions dating back to January 1999. He explained that the agency currently uses two sets of classifications, with different seasonal adjustments, but that the traditional classification, currently highlighted in the monthly press release, will be discontinued after today’s release.

“There’s a substantial difference in the monthly patterns between the two series,” Simonson noted. “The press release shows construction put in place fell 1.7% in May. It peaked in January and February, before falling 3.3% over the next three months. But this series will no longer be published.

“The new series shows that seasonally adjusted construction put in place slipped 0.5% from April to May. The biggest decrease occurred between January and February and the cumulative decline since January has been only 1.7%, half as great.

“The unadjusted data for January through May show a gain of 1.6% compared to the same months of 2002,” Simonson continued. “That reflects a nearly 9% spurt in residential construction (based on the new classifications), which outweighed the 5% drop in all other construction. The only nonresidential categories that have outpaced last year’s first five months are health care construction, which has tacked on a 15% rise, and water supply, up 7%.”

Simonson pointed out, “The construction trends that prevailed in 2002 are persisting. Revised Census totals for 2001 and 2002 show that last year, private residential construction rose by 8%, private nonresidential fell by 13%, and public construction of all types climbed 5%. So far in 2003, private residential is up 9%, private nonresidential has tapered off to a 10% decline, but public construction is only 0.6% ahead of last year’s pace.

“Within the private nonresidential category, however, there have been some notable changes. Electric power construction rose 4% last year to a record. It is down by 7% so far this year. Communications construction, which fell 8% in 2002 from its peak in 2001, has tumbled another 19% in the first five months of 2003. Private educational construction, which rose 1% last year, is down 6% in early 2003. On the plus side, many rates of decrease have moderated: manufacturing (-43% in 2002, -28% year-to-date in 2003), lodging (-29% in 2002, -11% in 2003), and office (-19% in 2002, -21% in 2003). The least changed private categories are health care (+14% in 2002, +16% this year) and commercial (-8% in 2002, -9% in 2003).

“For the remainder of 2003, I expect the health care category to remain extremely strong and most other private nonresidential categories to slow their declines further. But power plant construction is likely to drop even more.

Simonson also noted, “Most public construction categories have held up well so far this year, except highway and street construction, which is down 3% year-to-date. But the deepening fiscal crisis in most states could cause these numbers to deteriorate rapidly, especially if some states have to freeze all contracts due to lack of a balanced budget.”

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