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Association Economist Forecasts Continued Strength in Housing, Downturn in Federal Spending and Uneven Patterns among Private Nonresidential Categories in Second Half of 2013

Total construction spending climbed modestly in May as growth in residential and public construction offset a drop in private nonresidential activity, according to an analysis of new Census Bureau data by the Associated General Contractors of America. Association officials predicted that spending would remain uneven through the second half of 2013.

“Hesitancy by private owners to commit to new construction, along with continuing shrinkage in public budgets, will keep the recovery weaker than it otherwise would be,” said Ken Simonson, the association's chief economist. “On the plus side, both new residential spending and improvements to existing homes will keep some contractors busy. Residential spending appears poised for double-digit growth all year long.”

Construction put in place totaled $875 billion in May, an increase of 0.5 percent from April and 5.4 percent since May 2012, based on Census revisions dating back to 2011. Private residential spending rose 1.2 percent for the month and 23 percent from a year earlier. Private nonresidential spending dropped 1.4 percent in May and 0.9 percent year-over-year. Public construction spending gained 1.8 percent for the month but declined 4.7 percent over 12 months.

“The major private nonresidential segments remain volatile,” Simonson said. “Hotel construction has been the only consistently strong nonresidential category this year. But I expect a gain later in the year in activity related to oil and gas, such as pipelines, petrochemical plants, and fueling facilities for natural gas-powered trucks.”

The biggest jump in construction spending was in new multifamily construction, which soared 2.5 percent for the month and 52 percent year-over-year. New single-family construction rose 0.4 percent and 33 percent, respectively. Residential additions and renovation fell 2.7 percent in May but rose 5.1 percent over 12 months.

The largest private nonresidential category, power construction—which includes oil and gas field and pipeline projects as well as power plants, renewable power and transmission lines—rose 2.1 percent in May but slipped 1.5 percent from May 2012. The second-largest nonresidential segment—manufacturing—plunged 8.1 percent for the month and 3.4 percent from May 2012, although the manufacturing total for the first five months of 2013 combined was 5.4 percent higher than in January-May 2012. The private lodging category, covering hotel construction and renovation, rose 1.6 percent in May and 22 percent over 12 months.

Highway and street construction, the largest public category, increased 0.8 percent in May but fell 7.3 percent from a year earlier, Simonson noted. The next largest public niche, educational construction, edged up 0.4 percent for the month but plunged 11 percent year-over-year, respectively, he added.

“Federal government construction spending appears headed for the steepest decline of any type,” Simonson stated. “Agencies have been cutting back on contracts since 2011 and the pattern seems sure to continue.” Spending on federal projects climbed 0.6 percent for the month but plunged 16 percent from a year earlier and 29 percent from the high point in August 2011, he noted.