The Census Bureau’s newest report on construction spending showed a 0.7 percent jump in spending activity on private residential projects in March 2012. Initial estimates for January and February were revised from earlier readings of -0.1% and generally unchanged to an increase of 0.5% and a drop of 2.2%, respectively. The new single-family component for construction spending gained 3.8 percent in March, which more than offset the 1.3 percent decline that occurred in February. On a 3-month moving average basis, however, spending has increased in each of the last 9 months and is now 23 percent above its cyclical low observed in mid-2009. While an improvement, and with more room on the upside given that recent data on building permits point to additional growth in homebuilding activity, still-tight mortgage lending standards and large volumes of distressed properties in many markets are expected to limit gains over the near term.
New multifamily construction fell 3.1 percent in March, though February’s initial estimate was revised higher from a 2 percent gain to a solid 3.6 percent increase. The overall trend in multifamily construction spending remains positive, as this sector has increased in each of the last 12 months when viewed on a 3-month moving average basis. Demand for multifamily units has recovered noticeably in recent quarters as the rental vacancy rate recently fell to its lowest point in more than a decade and the absorption rate surged to its highest level since 2005. Permits authorized for 5+ unit dwellings have averaged approximately 220,000 annualized units during the past six months, which suggests continued strength for spending on new apartment buildings. The home improvement component of construction spending slumped for the fourth consecutive month, declining 1.9 percent.
Total construction spending registered a very modest 0.1 percent gain from February as the gains in private residential and private nonresidential were offset by another weak reading on public sector construction spending. Office buildings and manufacturing facilities accounted for the bulk of March’s improvement for the nonres sector, but the level of spending on office buildings remains low as vacancy rates remain just below their cyclical peaks. The power and manufacturing sectors have been the key sources of support for nonresidential construction activity over the past year. Public sector construction outlays fell 1.1 percent in March, with weaker readings for all the major categories. On a year-to-date basis, public sector outlays on construction have declined 2.6 percent.