Single-family and Power Construction are Only Bright Spots, Says Industry Economist Simonson

Construction spending tumbled in February by $11.6 billion, or 1.3 percent, to $846 billion, a low last recorded in 2002, according to an analysis of new federal figures by the Associated General Contractors of America.  Declines occurred relative to both the month before and February 2009 in most categories of private residential and nonresidential construction, as well as public construction, the association’s chief economist Ken Simonson noted.

“Most of the economy seems to be improving but construction is falling into an even deeper hole,” Simonson commented.  “Bad weather may account for a small part of February’s downturn, but most of the contraction reflects ongoing lack of demand, tight credit conditions and shrinking state and local budgets.”

Simonson pointed out that the February decrease might prove to be even worse once the government has more complete data. Today’s report included downward revisions of $27 billion (3 percent) in the January total and $20 billion (2 percent) in the December figure. The December number had already been cut by $13 billion (1 percent) in last month’s release, he said. “It appears many projects are being halted or scaled back.”

Simonson remarked that new single-family construction spending remained essentially flat in February, dipping by 0.1 percent after eight consecutive monthly increases, and was 3.9 percent above the February 2009 total. Improvements to existing single- and multi-family construction were down 4.3 percent for the month but 4.3 percent higher than a year earlier, he said. “These numbers suggest that single-family construction will rebound in 2010, even as multi-family continues to sink.” New multi-family construction spending was level in February but 52 percent below the year-ago number.

“Among private nonresidential categories, the only bright light is power construction—power plants, renewables such as wind and solar, and transmission lines—where spending rose 1.3 percent in February and 9 percent compared to a year before,” Simonson stated. “I expect this good news to continue, but I also anticipate further double-digit annual declines in other categories,” Simonson cited spending on lodging (-6.7 percent for the month, -53 percent year-over-year); commercial, including retail, warehouse and farm (-3.5 percent and -38 percent); private offices (-2.0 percent and -38 percent); and manufacturing (+3.4 percent and -35 percent).

“Health care spending could go either way; it will take a while for providers and investors to digest the implications of the new law,” Simonson concluded, noting that total health care spending shrank 1.6 percent in February and 15 percent from a year before.