Plumbing and Mechanical

May Construction Holds Firm

July 9, 2002
May Construction Holds Firm But Report Shows Divergence among Public, Private and Residential Building, AGC Economist Says

"Construction activity weakened slightly in May but remained a tad ahead of the year-ago level," said Kenneth D. Simonson, Chief Economist for Associated General Contractors of America (AGC), the nation's leading construction trade association. "But today's report from the Census Bureau on the value of construction put in place showed growing divergence among public, private nonresidential and private residential construction."

The aggregate figure from the Census Bureau showed that the value of construction put in place in May, $852 billion at a seasonally adjusted annual rate, was just 0.7% below the revised April total of $858 billion and 0.6% above the revised May 2001 level of $847 billion. However, the earlier figures were revised sharply downward (from $872 billion in April 2002 and $870 billion in May 2001), as were many of the monthly numbers for the past three years. On a year-to-date basis, construction put in place in the first five months of 2002 was virtually unchanged from the same period of 2001.

Private residential building construction slipped 0.7% in May compared to April, private nonresidential construction was down 3%, and public construction was up 2%. On a year-to-date basis, private residential building construction climbed 7%, private nonresidential construction was off by 16%, and public construction was 6% higher.

"Three categories of construction have been especially weak over the past year: industrial (down 4% for the month and 42% year-to-date), office (-7% and -28%), and hotels and motels (-2% and -22%)," Simonson said. "The largest private nonresidential category, 'other commercial,' which is mainly retail buildings, was off 3% for the month but only 2% year-to-date. That's consistent with the moderate expansion that has occurred in the retail sector.

"In contrast, manufacturing has climbed slowly out of its deep slide. Today's release from the Institute for Supply Management (ISM) showed manufacturing up for the fifth straight month. But production levels still aren't high enough to trigger new plant construction. Inventories are still falling and some firms are still laying off thousands of white-collar workers, so I don't expect any pickup soon in warehouse or office construction."

Simonson added, "Public construction presents a more mixed picture. The largest category currently is educational structures, which had done well in the private market, too. This month, public educational construction rose 4% from April's level, while private was down 9%. On a year-to-date basis, both sectors have risen 16 or 17% compared to the first five months of 2002.

"The next largest public category, highways and streets, was unchanged from April to May but down 2% year-to-date. Unfortunately, I think the ever-worsening federal and state fiscal picture will depress both educational and highway spending in coming months."

Simonson concluded, "The residential sector is the most encouraging. Single-family and multi-family value put in place both held steady in May and are up by 5% and 16%, respectively, on a year-to-date basis. Furthermore, the strong reports on May home sales, median sales price, housing starts and building permits, along with very low mortgage rates and continuing growth in personal income, all point to ongoing expansion. This activity, in turn, will aid contractors who do site clearing, street, utility, school, religious and neighborhood retail or institutional projects."

(The Census report for May is at www.census.gov/pub/const/c30_curr.pdf. Revised 2000-2002 monthly data is at www.census.gov/pub/const/C30/c30tab4.rpt. In addition, Census has posted a discussion of how various estimates of construction activity are compiled and how they differ, at www.census.gov/mcd/vip_csec_9798.pdf.)

NOTE: Click on www.agc.org/NewsBulletins/Data_DIGest or email simonsonk@agc.org to receive the Data DIGest, a weekly summary of economic news of relevance to construction, and monthly analyses of trends for different categories of construction.

Links