Nonresidential is flat in latest month, but up for year.

Construction spending sagged 1.1% in December from a downwardly revised November total to a seasonally adjusted annual rate (SAAR) of $1.14 trillion, the Census Bureau reported today. For 2007 as a whole, construction spending totaled $1.16 trillion, down 2.6% from 2006. Residential spending tumbled 2.7% for the month, 20% compared to December 2006, and 18% for the full year. Nonresidential spending was flat for the month and up 16% compared to December and full year 2006. Of the 16 nonresidential categories, all rose in 2007 except religious structures (-2.1%), reflecting that type’s close link to new housing. Growth leaders included lodging (-0.7% for the month, but up 68% from December 2006 and up 66% for the full year); power (0.5%, 38% and 27%); communication (6.0%, 28% and 21%); office (1.0%, 16% and 20%); transportation facilities (-1.5%, 17% and 16%); educational (-0.8%, 11% and 14%); health care (0.1%, 9.7% and 14%); and commercial (retail, warehouse and farm; -1.1%, 6% and 13%). Highway and street construction fell 2.1% in December but was 9.3% higher than a year before and up 7.2% for 2007 as a whole.

Seasonally adjusted “nonfarm payroll employment was essentially unchanged in January, at 138.1 million, as was the unemployment rate, at 4.9%,” new Bureau of Labor Statistics (BLS) Commissioner Keith Hall stated today. “Construction employment decreased by 27,000 in January, with the decline concentrated among the residential components. Construction has lost 284,000 jobs since its employment peak in September 2006; the residential components [residential building and specialty trade contractors] lost 315,000 jobs over that period.” In fact, the 20% decrease in residential spending from December 2006 to December 2007 makes it likely that residential employment actually fell about 20%, or 420,000 more than BLS estimated. The difference reflects electricians, plumbers, wallboard installers and other specialty trade contractors who are now working on nonresidential jobs but whose firms entered the BLS database when they did residential work. Adding those workers to the nonresidential total implies an increase of 390,000 nonresidential jobs in the last year, or 8%, a gain consistent with the 16% increase in nonresidential construction spending. A possible harbinger of future growth in nonresidential activity was the 3.3% rise in architectural and engineering services jobs in the past year. Average hourly earnings rose 3.7% for all private nonfarm production or nonsupervisory employees and 3.6% for construction workers.

Hotel construction should remain strong for now, according to a January 25 report from Lodging Econometrics (, which tracks projects. The firm said the fourth quarter “pipeline” rose 36% from the same quarter of 2006, with projects that are under construction, scheduled to start within the next 12 months, or in “early planning” all up more than 30%. But, the report warned, “December and January operating results may indicate that a turning point has been reached in the lodging industry…there will be fewer new project announcements in 2008 across all chain scales. In particular, fewer boutiques, unbranded hotels and mixed use [central business district] and resort projects will be announced into the pipeline, especially those with private residences. The condo hotel boom is over, while the number of new timeshare announcements is certain to decline….For projects already in the pipeline, there could be an increase in cancellations, as developers continue to have difficulty sourcing financing. Projects not already under construction could be delayed, as both financing and the underwriting process take longer to complete. Properties under 200 rooms, with the top brands and the most experienced developers…will be the most attractive to finance during the current turmoil, either through local institutions or a declining number of national lenders. There will be little opportunity to finance larger hotels until the environment changes.” The New York Times reported on January 20, “New hotel developments could add nearly 3,000 rooms to the Manhattan market in 2008…Although the current credit crisis has dealt a blow to some developers, analysts said they knew of no hotel projects in New York City that have been scuttled.”

Reports on Thursday suggest a slowdown in retail construction. The Bureau of Economic Analysis reported that personal consumption expenditures rose only 0.2% (SAAR) in December, down from 1.0% in November. The Wall Street Journal reported, “AnnTaylor Stores Corp. said it will close 117 struggling stores in the next three years…and postpone until 2009 the debut of its new concept store, aimed at baby boomers.” In another story, the Journal reported, “Starbucks plans to open a net of 1,175 new stores in the U.S. this year, down from its earlier forecast of 1,600 [itself cut from an initial 1,700]. The company will close 100 U.S. locations, far more than it has in recent years.”

Alternative power construction is a market in flux. On Wednesday, the Energy Department withdrew support from the $1.9 billion FutureGen “clean coal” and carbon dioxide sequestration project in Illinois, most likely killing it, although the agency said it would support several smaller and more promising projects instead. In contrast, the Daily Reporter (Wisconsin) reported on Thursday, “We Energies is expected to start operating the first 12 wind turbines [in a couple of weeks], the first part of a project…that will feature 88 wind turbines operating in Fond du Lac County by May, said We Energies spokesman Brian Manthey….Yet to meet its portion of a state wind-turbine mandate, the utility will likely need to construct 400 to 450 wind turbines by 2015…” The Albany Times Union reported on Wednesday, “Horizon Wind Energy…will purchase 201 large wind turbines [by 2010]. It…is growing as it develops five new projects across the state.”