Although public construction spending increased 0.6% in both June and July, it only brought nominal spending back to the April level; inflation-adjusted spending declined 1.5% over the same period. Highway was the weakest sector due to the continued delay in reauthorizing federal highway grants. Public safety buildings, public housing and municipal utilities were the only growing sectors. Expect a 4.1% gain this year, but only 2.5% in 2005.
Nonresidential builders hired 7,000 workers a month, seasonally adjusted, in June through August. Heavy contractors held employment steady in the past three months; homebuilders laid off 2,000 a month; and specialty trade contractors hired 2,000 a month. Employment will be steady to marginally higher for the rest of 2004 and then will rise 115,000 in '05. Heavy contractors and commercial builders each account for up to one-third of the gain, and homebuilders continue to cut staff.
Shipments from U.S. factories rose 3% in July and have increased more than 50% since March 2003. U.S. equipment consumption increased 65% over the same period, because imports expanded more than exports. Orders rose but remained less than shipments, so manufacturers' order backlogs fell for the third month. Nonetheless, the high order backlogs ensure further shipments gains into next year. Shipments will increase about 30% in 2004 and a further 9% in 2005.
Spending inched up only 0.9% from May to July. With almost half of the small gain due to higher materials costs, the volume of building activity has essentially stalled at the May level. The stall is expected to continue through next year as small spending gains from inflation and from larger homes is offset by a decline in the pace of housing starts from nearly 2.0 million to less than 1.8 million.
Private construction spending at best kept pace with inflation during the summer after more than a year of rapid growth. Little, if any, spending increase after inflation is likely for the rest of 2004; spending will rise about 6% by the end of next year. Two-thirds of this gain will be for nonresidential buildings, one-third for heavy projects other than highways, and none for residential. Annual growth will be halved next year to 4.7% because of the housing slowdown.