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.Â
Related Stories
| Jun 11, 2014
Bill signing signals approval to revitalize New Orleans’ convention center corridor
A plan to revitalize New Orleans' Convention Center moves forward after Louisiana governor signs bill.
| Jun 11, 2014
5 ways Herman Miller's new office concept rethinks the traditional workplace
Today's technologies allow us to work anywhere. So why come to an office at all? Herman Miller has an answer.
| Jun 11, 2014
Koolhaas’ OMA teams with chemical company to study link between color and economy
Dutch company AkzoNobel is partnering with Rem Koolhaas' firm OMA to study how the application of colorful paints and coatings can affect a city's economic development.
| Jun 11, 2014
Oceanic oases: Two new luxury condominiums under construction in South Beach
Slated for completion in 2015, both the seven-story, 275,141 square-foot One Ocean and six-story, 190,654 square-foot Marea will offer landscapes by Enzo Enea and interiors by Yabu Pushelberg. Â
| Jun 11, 2014
Esri’s interactive guide to 2014 World Cup Stadiums
California-based Esri, a supplier of GIS software, created a nifty interactive map that gives viewers a satellite perspective of Brazil’s many new stadiums.
| Jun 10, 2014
Site optimization: Paving the way for smoother land development projects
The biggest cost differential when dealing in site development from one site to another is the earthwork. So, when selecting a site, it is critical to not only take into account the initial purchase price of the property, but also what sort of investment it will take to prep the site for development.
| Jun 10, 2014
Gaudi’s famed cathedral on ice: Dutch students to construct 132-foot ice replica of Sagrada Familia
"Sagrada Familia in Ice" will be built with a mixture of wooden fibers and plain ice that is three times stronger than ice.Â
| Jun 10, 2014
Built-in balcony: New skylight windows can fold out to create a patio
Roof window manufacturer Fakro offers a skylight window system that quickly converts into an open-air balcony.
| Jun 10, 2014
New York's first-ever public housing for visually-impaired begins upgrade
Selis Manor is the first government-funded residence for the vision-impaired and disabled in New York City. MAP’s design eases crowding, increases security, and separates residents and visitors.Â
| Jun 9, 2014
6 design strategies for integrating living and learning on campus
Higher education is rapidly evolving. As we use planning and design to help our clients navigate major shifts in culture, technology, and funding, it is essential to focus on strategies that help foster an education that is relevant after graduation. One way to promote relevance is to strengthen the bond between academic disciplines and the campus residential life experience.Â