Construction Spending Approaches Record in August Despite Nonresidential Slump
“Construction put in place came within a whisker of setting a record in August but remains a tale of three markets,” said Kenneth D. Simonson, chief economist for the Associated General Contractors of America (AGC), the nation's leading construction trade association. “In August, housing continued to streak ahead, public construction rebounded, but private nonresidential construction slipped again.”
Simonson commented on the Census Bureau's release today of data on the value of construction put in place, which showed that the total amount spent on construction projects in August reached a seasonally adjusted annual rate of $882.7 billion, 0.2% above the upwardly revised July total of $880.8 billion (initially estimated at $879.8 billion) and less than 0.1% shy of the record $883.2 billion put in place in January 2003. Seasonally adjusted spending in August was 4% higher than a year before; for the first eight months of 2003, spending totaled 2.1% more than in January-August 2002.
“Private residential spending surged by 1.4% to a record in August,” Simonson observed. “Both the August-to-August and year-to-date growth rates are around 7%, with new single-family construction up by 12% and 14% in the two comparisons. Perhaps more surprising, multi-family construction grew 3% in both measures, despite higher vacancy rates now than a year ago.
“Public construction produced another pleasant surprise,” Simonson noted. “It rebounded 0.6% from a dip in July to match June's record level. The August 2003 level was 3% higher than a year before and the year-to-date total was 2% above the sum for January-August 2002, in spite of spending cutbacks by state and local governments.
“Private nonresidential construction continues to be a trouble spot,” Simonson said. “In August it fell 2.7% from the upwardly revised July mark and was 1.2% lower than in August 2002. The year-to-date total was 7% lower than in the same period of 2002. Still, that is much less of a drop than the double-digit declines that occurred from 2001 to 2002.
“Several positive indicators have emerged this week,” Simonson remarked. “Last night, President Bush signed a five-month extension of highway spending that will boost the federal contribution by 7% to an annual rate of $33.8 billion. That will help struggling state budgets as well the commuters caught in worsening congestion, as noted by yesterday's urban mobility report from the Texas Transportation Institute. AGC applauds the passage of this temporary patch but urges Congress to press ahead with a full six-year highway and transit reauthorization bill as soon as possible.
“On the housing front, the Mortgage Bankers Association reported this morning that mortgage rates retreated another 0.1 to 0.2 percentage points this week, bringing them closer to the historic lows of last June. That will help both new home construction and remodeling to remain hot,” Simonson commented.
“A good omen for eventually stanching the negative figures on industrial construction comes from this morning's report from the Institute for Supply Management,” Simonson said. “Its monthly survey of manufacturing purchasing managers had a positive reading (53.7) for the third straight month. That will eventually help factory, warehouse and other construction. Meanwhile, the strong report Monday from the Bureau of Economic Analysis on consumer spending (+0.8% for August, following gains of 0.9% for July and 0.7% for June) augurs well for retail and other consumer-related construction.”