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
| Apr 19, 2012
KTGY Group’s Arista Uptown Apartments in Broomfield, Colo. completed
First of eight buildings highlights unique amenities.
| Apr 19, 2012
Nauset begins work on $20M Joint Forces HQ at Hanscom AFB
3D imaging key to project timetable and cost containment.
| Apr 19, 2012
HBD Construction names Steven Meeks vice president
Meeks will provide expertise for the company in its many diverse areas of construction projects including health care, senior living, education and retail.
| Apr 18, 2012
Lafarge moving North American headquarters to Illinois
Lafarge CEO John Stull says the factors in their decision were location in the Midwest and area transportation.
| Apr 18, 2012
Positive conditions persist for Architecture Billings Index
The AIA reported the March ABI score was 50.4, following a mark of 51.0 in February; greatest demand is for commercial building projects.
| Apr 18, 2012
Syska Hennessy re-launches Information and Communication Technology practice
The ICT practice will focus a blend of products including Information Technology, Security, Audiovisual, Building Automation, Fire Life Safety, Medical Communications and Intelligent Building Systems.
| Apr 18, 2012
Perkins+Will designs new complex for Johns Hopkins Hosptial
The Charlotte R. Bloomberg Children’s Center and the Sheikh Zayed Tower create transformative patient-centric care.
| Apr 18, 2012
BBS Architects & Engineers acquires Ward Associates
The merged companies’ on-going project portfolio valued at $220 million.
| Apr 17, 2012
Princeton Review releases “Guide to 322 Green Colleges”
The guide profiles 322 institutions of higher education in the U.S. and Canada that demonstrate notable commitments to sustainability in their academic offerings, campus infrastructure, activities and career preparation.
| Apr 17, 2012
FMI report examines federal construction trends
Given the rapid transformations occurring in the federal construction sector, FMI examines the key forces accelerating these changes, as well as their effect on the industry.