Status and Forecast

By Jim Haughey, Director of Economics | September 28, 2010

Public Construction Spending

Public construction spending continues to expand at about an 8 percent annual rate, which will persist through 2007. Education will expand faster than in 2005, offset by slower highway growth. Water and sewer construction spending will continue at the recent 12–13 percent annual pace. Income and sales tax receipts will exceed budgeted collections again this fiscal year and will provide a new source of project funds at the close of fiscal years a few months ahead.

Construction Employment

Spending on commercial construction projects, mostly retail, has not kept up with cost increases for the past two months. This will reverse quickly. A 10.6 percent spending gain is expected for the full year based on the 26 percent rise in the value of commercial starts in 2005 reported by Reed Construction Data. Through February, starts are nearly 13 percent from the first two months of last year. Shopping centers and malls remain the fastest growing part of this market.

Construction Equipment Shipments

Equipment shipments jumped almost 9 percent in the last two months after three months of little change. Much slower growth is expected for the rest of the year. January orders were 19.5 percent below peak orders late last year, and the shipments backlog has declined more than a week. Equipment availability will remain tight for buyers and renters well into next year, especially for the type of equipment used for highways, bridges and nonresidential building construction.

Housing Starts

Favorable weather and a bunch up of multifamily projects lifted housing starts to 2.28 million in January from an average of 2.07 in the last eight months. Starts will be declining from this level through 2007. Already home builders are reporting reduced model-home traffic and increased sales cancellations. Inventory of unsold homes has risen enough to delay beginning some new home developments. Jobs in residential contracting were unchanged in February after three years of strong monthly increases.

Commercial Construction Spending

Spending on commercial-construction projects, mostly retail, has not kept up with cost increases for the past two months. This will reverse quickly. A 10.6-percent spending gain is expected for the full year based on the 26-percent rise in the value of commercial starts in 2005 reported by Reed Construction Data. Through February, starts are nearly 13 percent from the first two months of last year. Shopping centers and malls remain the fastest growing part of this market.

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