September 11, 2007

Non-residential building sector in the U.S. shows no signs of slowing

WASHINGTON, D.C.

Non-residential construction shrugged off the turmoil in homebuilding and credit markets in July to post another solid gain, Ken Simonson, Chief Economist for The Associated General Contractors of America said.

“Although total construction spending slipped 0.4 percent in July, seasonally adjusted, and residential fell 1.4 percent, non-residential spending climbed 0.6 percent, the tenth consecutive monthly gain,” Simonson observed. Simonson was commenting on the Sept. 4 construction spending report from the U.S. Census Bureau.

For the first seven months of 2007 combined, total construction was down 3.4 per cent and residential plummeted 18 per cent compared to the same period in 2006. Those figures obscure the 15 per cent jump in non-residential spending, he said.

“Private non-residential construction — the type that might seem most vulnerable to a credit pullback — showed no sign of contagion, rising 0.4 per cent in July and 17 per cent year-to-date,” Simonson noted.

The three most speculative components — commercial, office and lodging — all advanced.

Commercial construction was up 0.6 per cent for the month and 15 per cent year-to-date. The two biggest commercial subcomponents, multi-retail (big box and other general merchandise stores, shopping centers and malls) and warehouses, both leaped 4 per cent in July and 28 per cent year-to-date. Private office construction climbed 0.6 per cent (up 22 per cent year-to-date), and lodging shot up 0.8 per cent (up 60 per cent year-to-date).

Other strong gainers included power, up 0.5 per cent and 19 per cent, and private health care (mainly hospitals), up 1.3 per cent and 13 per cent, Simonson remarked.

“I anticipate these categories will remain vigorous, but I expect credit-sensitive types such as office, warehouse, retail and lodging to slow soon.”

Public construction was up 0.7 percent in July and 11 per cent year-to-date.

“The biggest component, education, rose 1.9 per cent and 12 percent. But highway and street construction, which received a big boost in late 2005 and early 2006, was down 0.8 per cent for the month and was only 5 per cent higher year-to-date. Partly, that reflects lower prices for diesel and asphalt, but it also shows states are running short of highway funds as gas tax receipts slow.

“Highway spending could drop sharply late next year,” Simonson warned.

“Last week, the Congressional Budget Office projected a $5 billion deficit in the federal Highway Trust Fund’s Highway Account in fiscal year 2009, which begins in just 13 months. Congress will need to bridge that gap in order to keep road spending from plunging.”

DCN News Services

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