Private Residential Construction Holds Steady in February

The Census Bureau reported that private residential construction spending was essentially unchanged between January and February 2012. However, the initial readings for December and January were revised appreciably lower, respectively, to an increase of 0.4% and a slight decline in spending of -0.1% (versus previous estimates of 1.5% and 1.8%). In concert with other indicators such as new housing starts, construction spending on new single-family homes slipped 1.5% in February after posting 8 consecutive months of gains in spending activity. Since bottoming out in May 2009, nominal spending levels on new single family homes have increased 22.4%, but a weak (albeit improving) labor market, tight mortgage lending standards and competition from distressed property sales have weighed heavily on demand and will likely dampen upside potential over the near term.

Construction spending on new multifamily housing increased 2% in February, which itself came on the heels of a 2.6% increase (revised higher from 0.7%) during January. The multifamily housing sector has experienced a solid rebound on the supply side over the past year, with vacancy rates falling even as apartment construction activity has trended appreciably higher. Starts of buildings with 5+ units have averaged nearly 200,000 units over the past 6 months and a pipeline at least this large is expected to continue over the near term as permits authorized for 5+ unit dwellings have stayed above 200,000 annualized units in each of the last four months. Spending on remodeling fell for the second consecutive month (January’s initial estimate was revised downward from a 1.3% gain to a 2.6% drop), but this category has held in a range around an annualized rate of $115 billion for nearly two years. In addition, attesting to its performance relative to new home construction, spending on home improvement activities has exceeded the level reported for new single-family home construction in 16 of the last 17 months.

Despite the steady reading for private residential, overall construction spending was pulled lower by private nonresidential spending and public sector outlays. The power sector saw the level of spending fall for the second consecutive month after experiencing sharp increases in spending throughout much of 2011 due to the commencement of several new large power plants and transmission lines projects. New manufacturing plant construction continued to climb higher in February, reflecting a blend of broad industry-wide improvements and several large-scale construction projects coming on line. Spending on commercial, office and lodging construction projects continued to bounce along the bottom in February. Public sector construction outlays fell 1.7% in February, but on a year-to-date basis spending is down only slightly compared to 2011.

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