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
K-12 Schools | Nov 30, 2022
School districts are prioritizing federal funds for air filtration, HVAC upgrades
U.S. school districts are widely planning to use funds from last year’s American Rescue Plan (ARP) to upgrade or improve air filtration and heating/cooling systems, according to a report from the Center for Green Schools at the U.S. Green Building Council. The report, “School Facilities Funding in the Pandemic,” says air filtration and HVAC upgrades are the top facility improvement choice for the 5,004 school districts included in the analysis.
Architects | Nov 29, 2022
Three decades and counting, Tinkelman Architecture has helped reshape New York’s Hudson Valley
The full-service firm has designed more than 100 projects in this region, including several multifamily buildings currently in the works
Retail Centers | Nov 29, 2022
'Social' tenants play a vital role in the health of the retail center market
After a long Covid-induced period when the public avoided large gatherings, owners of malls and retail lifestyle centers are increasingly focused on attracting tenants that provide opportunities for socialization. Pent-up demand for experiences involving gatherings of people is fueling renovations and redesigns of large retail developments.
Giants 400 | Nov 28, 2022
Top 200 Office Sector Architecture and AE Firms for 2022
Gensler, Perkins and Will, Stantec, and HOK top the ranking of the nation's largest office sector architecture and architecture/engineering (AE) firms for 2022, as reported in Building Design+Construction's 2022 Giants 400 Report.
Legislation | Nov 23, 2022
7 ways the Inflation Reduction Act will impact the building sector
HOK’s Anica Landreneau and Stephanie Miller and Smart Surfaces Coalition’s Greg Kats reveal multiple ways the IRA will benefit the built environment.
Multifamily Housing | Nov 22, 2022
10 compelling multifamily developments debut in 2022
A smart home tech-focused apartment complex in North Phoenix, Ariz., and a factory conversion to lofts in St. Louis highlight the notable multifamily developments to debut recently.
Digital Twin | Nov 21, 2022
An inside look at the airport industry's plan to develop a digital twin guidebook
Zoë Fisher, AIA explores how design strategies are changing the way we deliver and design projects in the post-pandemic world.
Healthcare Facilities | Nov 17, 2022
Repetitive, hotel-like design gives wings to rehab hospital chain’s rapid growth
The prototype design for Everest Rehabilitation Hospitals had to be universal enough so it could be replicated to accommodate Everest’s expansion strategy.
Industrial Facilities | Nov 16, 2022
Industrial building sector construction, while healthy, might also be flattening
For all the hoopla about the ecommerce boom and “last mile” order fulfillment driving demand for more warehouse and manufacturing space, construction of industrial buildings actually declined over the past five years, albeit marginally by 2.1% to $27.3 billion in 2022, according to estimates by IBIS World. Still, construction in this sector remains buzzy.
Wood | Nov 16, 2022
5 steps to using mass timber in multifamily housing
A design-assist approach can provide the most effective delivery method for multifamily housing projects using mass timber as the primary building element.