Construction spending fell by almost $12 billion from Jan to Feb, which was less than the three previous month’s declines. The drop was concentrated in three areas, one predictable, one curious and probably weather related and one that has not been a big factor in change impact up to now, but may be in the future.
Private commercial construction was off by $1.5 billion and most of the decline was concentrated in ‘other’ commercial construction such as drug and building supply stores. Commercial construction in general has been the softest portion of construction spending and the specific component in any one month has moved around.
A $2 billion fall in public infrastructure in roads, sewage and waste removal spending in light of the stimulus spending focus is a surprise and may be explained by unusually poor weather in February. Nevertheless, those two components account for a quarter of the absolute decline.
Residential construction held reasonable steady with the exception of the improvements component. The improvement component, which includes only remodeling of owner-occupied homes, fell $5 billion or 4.3%. The remodeling decline accounted for almost half of the overall decline in construction spending. Weather could explain part of this change, but the monthly series has also been erratic, moving up 3% in January and falling 8.5% in December. On a more stable annual basis, remodeling has been growing from about one-quarter of residential construction to almost half. As a more significant share of housing construction, changes in remodeling have and will continue to have a greater affect on the totals.
Remodeling expenditures and changes to levels will continue to have a greater impact on construction spending because:
1) New construction will remain a much smaller share of residential construction,
2) Energy conservation tax incentives will continue through 2010 for items such as windows, doors, insulation and HVAC,
3) More households will remain in place rather than move because they don’t have the equity they once had, and
4) Some households have grown in size and need more room from children or parents or relatives moving in after a foreclosure or loss of a job.