Construction Spending Improves ….. but Residential Construction Spending Continues to Fall


Construction spending improved in August, rising 0.4% to $811.8 billion from an upwardly revised $808.6 billion in July, according to the Census Bureau release of the Value of Construction Put-in-Place.  Despite the modest gain, construction spending remains at record lows, with August’s number the second lowest level since December 2000 (July 2010 being the lowest).

The increase was due a 2.5% rise in public construction spending, to $313.6 billion, due to strong gains in public residential construction (+6.7%), commercial (+8.2%), healthcare (+5.1%) and road construction (+5.0%).  With funding from the grant, contract and loan components of the American Reinvestment and Recovery Act continuing to roll out, public construction spending remains high.  It remains at a similar level (less than 1% below) to that of August 2009 ($316.7) and August 2008 ($313.7). Around 40% of the $275 billion available in the grants, contracts and loans programs have been spent to date, and we expect the program to continue distributing payments through to the middle of 2012.  This will maintain public construction spending around current levels well into 2012.

Much of the increase in public construction spending was offset by declines in private construction spending, down 0.9%.  Private construction spending has fallen for 4 consecutive months and at $498.2 billion is at its lowest level since January 1998. Much of this decline was a result of further reduction in private non-residential construction spending, which fell 1.4% to 259.7.  There were notable declines in private construction put in place in the power (-2.8%), commercial (-2.8%), transport (-1.8%) and communication (-1.8%) sectors. 

Private residential construction fall 0.3% in August.  However, with the gains in public residential spending, the value of residential construction put-in-place was flat (+0.02%) in August at $249.13 billion.  Overall, the value of private residential construction put in place is down 15% since August 2009.

Private single family construction spending slipped 4.2% to $109.5 billion. It has now returned to its October 2009 level.  This was anticipated given the decline in single family housing starts since the conclusion of the homebuyer tax credit in April.  The rise in single family housing starts in August signals that the payback from the homebuyer tax credit may be drawing to an end, thus we expect to see the value of private single family residential construction put in place turn the corner soon.  With a rebound in single family housing starts expected in the fourth quarter of 2010, we expect private single family construction spending to turn the corner in the fourth quarter of 2010, and to continue to build momentum through 2011 and 2012.

Private multifamily construction spending also fell in August, down 11.4%.  This more than accounts for the marginal increase in June (0.3%) and July (0.6%). At $11.85 billion, the value of private multifamily residential construction put in place is at its lowest level since February 1994.  Multifamily housing starts have been very volatile over the past two years. After plummeting to a low of only 54,000 in October 2009, they have bounced around widely since.  This volatility will be observed in the value of private multifamily construction put in place over the next few months, as construction of multifamily housing units generally takes between one and two years.  We do not expect multifamily housing starts to begin to show signs of recovery until the end of 2011.  Therefore, it is unlikely we will see a strong upturn in private multifamily construction put in place until mid to late 2012.


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