Outlook for Construction Spending Better than Results for 2013

Total Construction Spending and its Major Components

02/26/2014 by Bernard M. Markstein 

The U.S. Census Bureau reported that total construction spending edged up 0.1% in December to $930.5 billion at a seasonally adjusted annual rate (SAAR) after advancing 0.8% in November. For the year, construction spending increased 4.8%.

Nonresidential building construction plunged 3.1% to $304.6 billion (SAAR) in December after increasing 0.9% in November. For the year, spending was essentially flat, up 0.1%. Given that construction spending numbers are not adjusted for inflation, real activity for nonresidential building fell in 2013.

Heavy engineering (non-building) construction spending increased 0.7% to $268.5 billion (SAAR) in December after a 0.4% rise in November. For the year, spending dropped 3.3%--a tough year for infrastructure projects.

Total residential construction spending, which includes improvements, rose 2.4% in December to $357.4 billion (SAAR) after increasing 1.0% in November. New residential construction spending, which excludes improvements and which has been increasing for over two years, climbed 2.6% to $221.7 billion in December after rising 1.8% in November. For the year, total residential construction spending increased 17.5% and new residential construction increased 28.9%.

U.S. Total Construction Spending (billions of U.S. current dollars)
	Current Monthly (1) (latest actual values)			3-Month Moving Average			Annual
	Oct-13	Nov-13	Dec-13	Oct-13	Nov-13	Dec-13	2012	2013
New Single-family	172.2	175.7	181.7	172.1	173.5	176.6	132.0	168.8
Month-over-Month % Change	-0.1%	2.0%	3.4%	0.6%	0.8%	1.8%
Year-over-year % Change (NSA)	18.5%	18.4%	21.5%	23.5%	20.2%	19.3%	22.0%	27.9%
New Multifamily (2)	40.1	40.4	40.0	39.0	39.7	40.2	27.8	37.2
	3.5%	0.6%	-0.9%	3.3%	1.9%	1.0%
	31.4%	27.9%	20.1%	36.0%	35.1%	33.7%	22.6%	33.7%
New Residential (3)	212.3	216.1	221.7	211.1	213.2	216.7	159.9	206.1
	0.5%	1.8%	2.6%	1.1%	1.0%	1.6%
	20.6%	20.1%	21.2%	24.7%	21.9%	20.6%	22.1%	28.9%
Residential Improvements (4)	133.5	133.1	135.7	129.4	133.8	134.1	126.7	130.5
	-1.0%	-0.3%	1.9%	2.3%	3.4%	0.2%
	19.1%	0.4%	16.3%	2.4%	6.6%	12.1%	4.0%	3.0%
Total Residential (5) (6)	345.9	349.2	357.4	340.5	347.1	350.8	286.5	336.6
	-0.1%	1.0%	2.4%	1.5%	1.9%	1.1%
	19.9%	12.5%	19.4%	14.7%	15.4%	17.2%	13.4%	17.5%
Nonresidential Building	311.5	314.2	304.6	304.7	308.9	310.1	298.5	298.7
	3.4%	0.9%	-3.1%	1.2%	1.4%	0.4%
	3.2%	7.4%	3.0%	1.2%	3.5%	4.5%	5.1%	0.1%
Heavy Engineering (Non-Building)	265.6	266.6	268.5	269.2	267.1	266.9	272.0	263.1
	-1.4%	0.4%	0.7%	-0.7%	-0.8%	-0.1%
	-9.3%	-16.3%	-11.9%	-1.4%	-8.0%	-12.5%	8.2%	-3.3%
Total (6)	922.9	929.9	930.5	914.4	923.1	927.8	857.0	898.4
	0.7%	0.8%	0.1%	0.7%	1.0%	0.5%
	4.5%	0.6%	3.1%	5.0%	3.6%	2.8%	8.7%	4.8%
(1) Monthly levels are seasonally adjusted at annual rates (SAAR figures). (2) New Multifamily = New Private Multifamily + New Public Multifamily - Public Improvements (estimated by Reed Economics) (3) New Residential = New Single-family + New Multifamily (4) Residential Improvements include remodeling, renovation and replacement work. Number also includes Reed Economics estimate of improvements to public housing. (5) Total Residential = New Single-family + New Multifamily + Residential Improvements. (6) Total may not equal the sum of its components due to rounding. Source: Census Bureau, U.S. Department of Commerce.

Total public construction spending dropped 2.3% at a seasonally adjusted (SA) rate in December after sinking 1.4% in November. For the year, public construction spending decreased 2.8%.

Total private construction spending rose 1.0% in December after increasing 1.7% in November. For the year, private construction spending increased 8.5%.

Public and Private Construction Spending (billions of U.S. current dollars)
	Monthly Figures (1) (latest actual values)			3-Month Moving Average			Annual
	Oct-13	Nov-13	Dec-13	Oct-13	Nov-13	Dec-13	2011	2012	2013
Private Spending	646.3	657.1	663.9	639.1	649.4	655.8	501.6	577.9	627.2
Month-over-Month % Change	0.2%	1.7%	1.0%	1.0%	1.6%	1.0%
Year-over-year % Change (NSA)	6.2%	1.7%	4.9%	7.6%	5.4%	4.3%	0.2%	15.2%	8.5%
Public Spending	276.6	272.8	266.6	275.3	273.7	272.0	286.4	279.0	271.2
	1.8%	-1.4%	-2.3%	0.1%	-0.6%	-0.6%
	0.7%	-1.9%	-1.2%	-0.1%	-0.1%	-0.7%	-5.8%	-2.6%	-2.8%
Total Federal Spending	24.0	22.9	23.3	23.3	23.1	23.4	31.7	27.4	23.5
	6.6%	-4.8%	2.0%	0.0%	-0.5%	1.2%
	-13.5%	-15.0%	-11.0%	-13.3%	-12.4%	-13.2%	1.7%	-13.5%	-14.2%
Federal Nonresidential        Spending	22.6	21.6	22.2	21.9	21.8	22.1	29.1	25.8	22.1
	6.1%	-4.3%	2.6%	0.0%	-0.2%	1.4%
	-14.5%	-14.9%	-9.7%	-13.7%	-12.6%	-13.0%	2.4%	-11.4%	-14.4%
Federal Residential        Spending	1.4	1.2	1.1	1.4	1.3	1.3	2.6	1.6	1.4
	16.0%	-13.5%	-8.4%	-0.4%	-5.4%	-2.5%
	7.7%	-17.9%	-30.6%	-5.6%	-8.9%	-16.1%	-5.7%	-38.2%	-9.8%
Total State & Local Spending	252.6	249.9	243.2	252.0	250.6	248.6	254.8	251.7	247.7
	1.3%	-1.1%	-2.7%	0.1%	-0.6%	-0.8%
	2.0%	-0.6%	0.0%	1.2%	1.1%	0.5%	-6.6%	-1.2%	-1.6%
State & Local        Nonresidential Spending	248.3	245.7	239.6	247.5	246.4	244.5	248.8	247.0	243.3
	1.3%	-1.0%	-2.5%	0.2%	-0.5%	-0.7%
	2.2%	-0.3%	0.3%	1.3%	1.3%	0.8%	-6.2%	-0.7%	-1.5%
State & Local Residential        Spending	4.3	4.2	3.7	4.5	4.2	4.0	6.0	4.7	4.4
	0.6%	-1.6%	-12.4%	-4.3%	-5.8%	-4.4%
	-9.1%	-14.9%	-16.6%	-4.5%	-10.3%	-13.3%	-21.3%	-21.5%	-5.3%
Monthly levels are seasonally adjusted at annual rates (SAAR figures). Source: Census Bureau, U.S. Department of Commerce.

The Economy

This winter dealt a nasty blow to the nation and to the economy. Bad weather disrupted transportation of goods and people, kept workers home, and delayed many construction projects. It also made interpreting the economic data more difficult.

In spite of the weather challenges, the economy does seem to be gaining traction. Much of the interrupted economic and construction activity will be recouped in subsequent months as the weather improves.

The outlook for the economy is encouraging. There has been a significant reduction in the political infighting in Washington, a major source of economic uncertainty and of unnecessary hurdles for the economy.

Congress passed and the president signed into law a bill that suspended the federal debt ceiling for a year. This removes a major potential negative for the economy for a year.

Other major legislation, such as appropriations for government operations and the farm bill, has been enacted. Although it is not all peace and harmony in D.C., at least some of the basic business of government is proceeding thanks to a new found willingness to compromise.

Risks to the Economy and the Forecast

The risks to economic growth and the Reed construction forecast have decreased. But, as always, risks remain.

Major risks to the economy include:

• Too aggressive action on the part of the Federal Reserve as it unwinds its asset purchase program, resulting in a sustained spike in interest rates
• Sharp reductions in government spending in the short run
• Sovereign debt default by one or more European governments
• One or more European governments abandon the euro
• A sudden, significant increase in oil prices for a prolonged period

If any one of these events occurs, economic growth will be reduced and the probability of recession will be increased. The result will also be lower construction spending than currently forecast by Reed.

The Forecast

The Reed forecast assumes the above risks are avoided or are minimized, and that overall economic growth advances at a moderate pace this year and next. Once the weather improves, much of the lost economic activity will be regained. Construction in particular will pick up as builders move to bring delayed projects back on schedule. Nonresidential building construction will slowly improve throughout this year and beyond as the economy strengthens.

Heavy engineering (non-building) construction will rebound with the better weather and then improve this year and beyond. Although we expect more federal funding for infrastructure projects to be forthcoming this year, funding levels will not be back to normal or anywhere near the true needs of the nation. Limited public funding for infrastructure will be the key factor preventing faster growth. Public-private partnerships will continue to be a major means to move badly needed infrastructure projects forward at the local and state levels.

Total construction spending is forecast to increase 8.8% in 2014 and 11.1% in 2015 as nonresidential and heavy engineering construction improve and residential construction continues to expand.

U.S. Total Construction Spending (billions of U.S. current dollars)
	Actual					Forecast
	2009	2010	2011	2012	2013	2014	2015
New Single-family	105.3	112.6	108.2	132.0	168.8	199.2	241.1
Year-over-year % Change	-43.3%	6.9%	-3.9%	22.0%	27.9%	18.0%	21.0%
New Multifamily (1)	35.9	24.1	22.7	27.8	37.2	42.2	46.3
	-30.0%	-32.9%	-5.7%	22.6%	33.7%	13.4%	9.7%
New Residential (2)	141.2	136.7	130.9	159.9	206.1	241.5	287.5
	-40.4%	-3.2%	-4.2%	22.1%	28.9%	17.2%	19.0%
Residential Improvements (3)	112.7	112.5	121.8	126.7	130.5	140.9	154.7
	-6.6%	-0.2%	8.3%	4.0%	3.0%	7.9%	9.8%
Total Residential (4) (5)	253.9	249.1	252.7	286.5	336.6	382.4	442.1
	-29.0%	-1.9%	1.4%	13.4%	17.5%	13.6%	15.6%
Nonresidential Building	375.7	290.4	284.0	298.5	298.7	317.0	343.2
	-14.2%	-22.7%	-2.2%	5.1%	0.1%	6.1%	8.3%
Heavy Engineering (Non-Building)	273.5	265.0	251.3	272.0	263.1	277.8	300.4
	0.5%	-3.1%	-5.2%	8.2%	-3.3%	5.6%	8.2%
Total (5)	903.2	804.6	788.0	857.0	898.4	977.2	1,085.8
	-15.4%	-10.9%	-2.1%	8.7%	4.8%	8.8%	11.1%
(1) New Multifamily = New Private Multifamily + New Public Multifamily - Public Improvements (estimated by Reed Economics) (2) New Residential = New Single-family + New Multifamily (3) Residential Improvements include remodeling, renovation and replacement work. Number also includes Reed Economics estimate of improvements to public housing. (4) Total Residential = New Single-family + New Multifamily + Residential Improvements. (5) Total may not equal the sum of its components due to rounding. Source: Census Bureau, U.S. Department of Commerce. Forecast: Reed Construction Data.

Source: Reed Construction Data