Construction Spending Inches Higher in May for Third Straight Month - July 1, 2014

Major Categories Post Year-over-Year Increases, Led by Leaps in Multifamily, Power and Office Construction; Association Officials Warn Highway Spending Could Dive Unless Trust Fund Receives Immediate Aid

Total construction spending edged higher for the third straight month in May, as solid increases in private nonresidential and public construction outweighed a downturn in residential projects, according to an analysis of new Census Bureau data by the Associated General Contractors of America (AGC). Association officials cautioned that the pickup in highway spending is in jeopardy of reversing sharply unless policy makers act urgently to shore up the federal Highway Trust Fund.

"The May figures show that construction activity continues to expand, but with lots of variability by month and project type," said Ken Simonson, the association's chief economist. "These uneven patterns seem likely to continue for the rest of the year."

Construction put in place totaled $956 billion in May, 0.1 percent above the upwardly revised April total and 6.6 percent higher than in May 2013. For the first five months of 2014, total spending rose 8.2 percent from the January-May 2013 total.

Private residential construction spending in May retreated 1.5 percent from April, when homebuilders may have put in extra hours to make up for adverse winter weather in many regions. The May total was 7.5 percent above the May 2013 level, representing an 11 percent increase in single-family spending, 31 percent for multifamily and a 2.4 percent decline in improvements to existing housing.

Private nonresidential spending rose 1.1 percent in May and 11 percent over 12 months. The largest private segment, power construction - comprising work on oil and gas fields and pipelines as well as electricity projects - rebounded 4.3 percent from a sharp drop in April and was up 30 percent year-over-year. Among other major private nonresidential segments, commercial construction - retail, warehouse and farm projects - climbed 6.5 percent over 12 months; manufacturing construction rose 6.7 percent; and office work jumped 23 percent.

Public construction spending rose 1.0 percent for the month and 1.2 percent year-over-year. The largest public segment, highway and street construction, expanded 2.3 percent from a year before. The second-biggest category, educational construction, gained 1.7 percent since May 2013.

"The outlook is brightest for multifamily and oil and gas-related projects, including manufacturing." Simonson commented. "But single-family and office construction, which have done well so far, may fade later this year."

Association officials said the increase in highway and street construction will do a U-turn if Congress and the administration fail to act soon to replenish the Federal Highway Trust Fund. Current estimates indicate the federal government will have difficulty reimbursing states for payments to highway contractors later this month, a development that could lead to project delays and reduced construction employment.

"Stabilizing the Highway Trust Fund should be lawmakers' top priority when they return from recess early next week," said Stephen E. Sandherr, the association's chief executive officer. "Construction firms, their suppliers and highway users should not be held hostage to political posturing."

Source: AGC of America