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Construction Spending Climbs In June; Metro Areas Divide Between Job Gains, Losses

By Ken Simonson
August 2, 2011

Construction spending totaled $772 billion at a seasonally adjusted annual rate in June, up 0.2 percent from the rate in May but down 4.7 percent from June 2010, the Census Bureau reported Aug. 1. The estimates for May and April were revised upward by $17 billion (2.2 percent) and $10 billion (1.4 percent), respectively. The monthly gains were concentrated in private nonresidential construction, which rose 1.8 percent for the month, with increases in nine of the 11 segments that Census breaks out in its press release, but fell 1.3 percent year-over-year.

In descending order of current size, those segments include power construction, up 0.6 percent for the month and 13 percent year-over-year; commercial (retail, warehouse and farm) construction, 3.1 percent and 2.3 percent; manufacturing, 4.0 percent and -11.8 percent; health care, 2.3 percent and -3.0 percent; and office, 0.5 percent and -10.1 percent.

Private residential construction edged down 0.3 percent and 2.1 percent, with the largest segment - improvements - down 0.5 percent and up 8.2 percent; new single-family construction, +0.3 percent and -11 percent; and new multifamily, -2.8 percent and -10 percent.

Public construction dropped 0.7 percent and 9.6 percent, with sharp decreases in the two largest components: highway and street construction, -1.6 percent and -10 percent; and educational, -4.1 percent and -13 percent.

Employment numbers: Construction employment, not seasonally adjusted, increased from June 2010 to June 2011 in 149 metro areas (including divisions of large metros), decreased in 141 and remained unchanged in 47, the Associated General Contractors of America reported in an analysis of Bureau of Labor Statistics data. (BLS combines mining and logging with construction in many metros to avoid disclosing data about industries with few employers.) The largest percentage gains were in the Lake County, Illinois-Kenosha County, Wis., metro division (20 percent, 2,600 construction jobs); Burlington-South Burlington, Vt. (18 percent, 900 combined jobs); Casper, Wyo. (15 percent, 400 construction jobs); Charleston, W. Va. (15 percent, 2,200 combined jobs); and Davenport-Moline-Rock Island, Iowa-Ill. (15 percent, 1,300 combined jobs).

The largest number of jobs was added in the Dallas-Plano-Irving division (5,600 combined jobs, 5 percent), followed by the Chicago-Joliet-Naperville division (5,500 construction jobs, 4 percent); and the Warren-Troy-Farmington Hills, Mich., division (4,300 combined jobs, 12 percent).

The largest percentage losses were in Redding, Calif. (-17 percent, -500 combined jobs); Bend, Ore. (-15 percent, -500 combined jobs); and Las Vegas-Paradise, Nev. (-15 percent, -7,000 combined jobs). The largest number of job losses was in Atlanta-Sandy Springs-Marietta (-7,100 construction jobs, -8 percent); followed by Las Vegas; and the Los Angeles-Long Beach-Glendale division (-5,400 construction jobs, -5 percent).

Economic indicators: Real (inflation-adjusted) gross domestic product (GDP) rose at a 1.3 percent (SAAR) in the second quarter, after rising 0.4 percent (revised from a prior estimate of 1.9 percent) in the first quarter, the Bureau of Economic Analysis reported July 29. Real investment in private nonresidential structures (including wells and mines) rose 8.1 percent, in contrast to a decrease of 14 percent. Real residential fixed investment increased 3.8 percent, in contrast to a drop of 2.4 percent. Real government investment in structures plunged 17 percent, following a fall of 22 percent.

These estimates do not include Census’s actual data for June or its upward revisions for May and April, which will have a positive influence GDP. The GDP price index slowed to 2.3 percent (SAAR) from 2.5 percent. The price index for private nonresidential structures climbed to 6.6 percent from 5.0 percent; the price index for residential fixed investment held steady at 1.5 percent; and the price index for governmental structures rose to 4.9 percent from 3.1 percent.

The employment cost index, a measure of total payments for wages and benefits, increased 0.8 percent, seasonally adjusted, for the private sector in the second quarter of 2011 and 2.3 percent year-over-year, BLS reported July 29. The index for construction rose 0.6 percent in the second quarter - the biggest quarterly increase since the second quarter of 2008, following a rise of 0.1 percent in the first quarter, and 1.2 percent year-over-year.

Reports from the 12 Federal Reserve districts, as summarized July 27 in the latest “Beige Book” (so named for the color of its cover), a set of informal soundings of regional business conditions, “indicated that economic activity continued to grow; however, the pace has moderated in many districts” (which are referenced by the name of their headquarters cities). “Increasing inventories of unsold homes in the Boston, New York and Kansas City districts have restrained building in the single-family housing sector. Residential construction activity overall was mixed, though it increased in the Minneapolis district.

“Since the previous Beige Book, construction and activity in the residential rental market have continued to improve in the New York, Chicago, Dallas,and San Francisco districts. Nonresidential real estate activity improved somewhat in the Boston, Philadelphia, Cleveland, Chicago, St. Louis and Dallas districts. The Chicago district reported strong demand for industrial facilities, particularly from the automotive sector. The Philadelphia district reported improvements in terms of lower vacancy rates for office space, industrial space, and apartments; the Chicago district reported generally lower vacancy rates.

“The New York, Richmond, Atlanta, Minneapolis, Kansas City and San Francisco districts all reported generally weak activity in nonresidential real estate. Construction in the Minneapolis district stalled in areas because of flooding and unavailability of state building inspectors due to the Minnesota state government shutdown. Health care and apartment construction was a bright spot for the Atlanta district. Activity was weak in the Kansas City district, but firms that supply construction materials reported increased sales and stable prices. San Francisco reported stable but high vacancy rates in many parts of the district.”

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Chief Economist, Associated General Contractors of America 703-837-5313; fax -5406; www.agc.org

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