This year's unusually difficult winter took its toll on construction activity. Nonetheless, first quarter spending for all the major groups was up compared to the same period in 2013.
The U.S. Census Bureau reported that total construction spending advanced 0.2% in March to $942.5 billion at a seasonally adjusted annual rate (SAAR). First quarter not seasonally adjusted (NSA) spending was 8.3% higher than the same period a year ago.
Nonresidential building construction spending fell for the fifth month in a row, down 1.0% to $298.8 billion (SAAR) in March. January and February spending were revised down by $3.3 billion and $6.4 billion, respectively, which was 1.1% and 2.1% of their respective previously reported numbers. That altered the monthly percentage change for January from +0.1% to ?0.9%. Despite the recent declines, first quarter NSA spending was 3.5% higher than in 2013.
Heavy engineering (non-building) construction spending increased 0.8% to $269.2 billion (SAAR) in March. January and February spending were revised down by $2.5 billion and $5.3 billion, respectively, which was 0.9% and 2.0% of their respective previously reported numbers. First quarter NSA spending was 4.5% higher than a year ago.
Total residential construction spending, which includes improvements, rose 0.7% in to $374.5 billion (SAAR) after inching up 0.1% in February. New residential construction spending, which excludes improvements, also increased 0.7% to $229.1 billion in March, its 30th consecutive monthly increase. First quarter NSA total residential construction spending was 16.0% higher than last year and new residential construction was 17.9% higher.
March private construction spending bounced back from February's 0.2% dip at a seasonally adjusted (SA) rate, increasing 0.5%. First quarter NSA spending was 12.5% higher than 2013 first quarter spending.
Meanwhile, public construction spending fell for the fifth consecutive month, down 0.6% in March. First quarter NSA public spending was 2.0% lower than a year ago.
The Economy
The economic data continue to indicate that the country is recovering from the harsh winter. At this point, the construction spending data are only available through March. We know that the bad weather across much of the nation extended into April and May. Thus we do not look for a quick rebound in the numbers, but continued slow improvement.
We do believe that economic activity is shaking off the winter blues and will continue to post better numbers. Employment growth is key, both as an indicator of how fast the economy is expanding and as a stimulus to further growth as newly hired workers spend their new income.
The Federal Reserve continues to ratchet down its monthly purchases of long-term assets. At the end of April, the Fed announced it would reduce its purchases of long-term assets from $55 billion per month to $45 billion per month starting in May. Prior to January, when the reduction in purchases began, the Fed was buying $85 billion of long-term assets per month. To date, the Fed's actions have led to only a relatively small increase in long-term interest rates.
Risks to the economy and construction remain. These include:
- A sustained spike in interest rates due to the Federal Reserve unwinding its asset purchase program too rapidly
- Sharp reduction 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
The probability of any one of these occurring is fairly low. Nonetheless they remain a potential negative for the economy and construction.
Two other issues will become important issues in the coming months. First, September 30 marks the end of the current federal fiscal year. At that point, appropriations for most government operations and programs expire. The appropriate action would be to have the necessary appropriation bills for the next fiscal year passed and signed into law prior to October 1. This is not a given. Appropriations for the current fiscal year did not become law until the middle of January 2014.
Second, the suspension of the debt ceiling expires in March. Prior to that, a new debt ceiling needs to be passed, the debt ceiling suspension needs to be extended, or—best of all worlds, but extremely unlikely—the debt ceiling needs to be eliminated.
Failure to deal with these issues in a timely manner will create additional uncertainty for business and the economy with negative fallout for investment and construction.
The Forecast
The Reed forecast assumes that, despite these risks, the economy grows at a moderate pace this year and next. Further, nonresidential building construction, which has been struggling of late, is forecast to gain traction and improve this year and next.
Heavy engineering (non-building) construction activity, which has shown some strength of late, is forecast to expand this year and next. Federal funding for infrastructure projects is expected to increase this year and beyond, although not by nearly the amount that is necessary to properly address the nation's aging infrastructure. The amount of funding available for public projects will greatly affect the level of infrastructure construction activity. Public-private partnerships at the state and local level will boost the amount of money available for infrastructure projects.
Total construction spending is forecast to increase 9.0% in 2014 and 11.3% in 2015, with nonresidential and heavy engineering construction gaining strength and residential construction continuing its expand.
For more from this report, including charts, click here.
Related Stories
Architects | Mar 2, 2020
Two ‘firsts’ for Sasaki and LEO A DALY
Following an industry trend, the firms hire chiefs of technology and sustainability, respectively.
Architects | Feb 26, 2020
Seven architects aim to design the “newsstand of the future”
The winning project will be created and presented during Milan Design Week 2020.
Architects | Feb 24, 2020
Design for educational equity
Can architecture not only shape lives, but contribute to a more equitable and just society for marginalized people?
AEC Tech | Feb 22, 2020
Investor interest in the built environment not quite as avid in 2019
Builtworlds’ annual list of venture deals led by workspace providers.
Modular Building | Feb 16, 2020
On the West Coast, prefab gains ground for speedier construction
Gensler has been working with component supplier Clark Pacific on several projects.
AEC Tech | Feb 13, 2020
Exclusive research: Download the final report for BD+C's Giants 300 Technology and Innovation Study
This survey of 130 of the nation's largest architecture, engineering, and construction firms tracks the state of AEC technology adoption and innovation initiatives at the AEC Giants.
Office Buildings | Feb 11, 2020
Forget Class A: The opportunity is with Class B and C office properties
There’s money to be made in rehabbing Class B and Class C office buildings, according to a new ULI report.
Architects | Feb 6, 2020
NBBJ acquires immersive technology design studio ESI Design
NBBJ has acquired experience design studio ESI Design. The acquisition signals a new era where buildings will be transformed into immersive and interactive digital experiences that engage and delight.
Sponsored | HVAC | Feb 3, 2020
Reliable Building Systems Increase Net Operating Income by Retaining Tenants
Tenants increasingly expect a well-crafted property that feels unique, authentic, and comfortable—with technologically advanced systems and spaces that optimize performance and encourage collaboration and engagement. The following guidance will help owners and property managers keep tenants happy.
Architects | Jan 29, 2020
Frank Lloyd Wright’s architecture school is closing
The school was established in 1932.