Status and Forecast

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

Public Construction Spending

Spending grew less than inflation in February and March after a brief surge in December and January. The slowdown is temporary, as projects are being reassessed because costs are exceeding budget. This also occurred in a similar cost situation in 2004. State and local government budget balances are back above average and improving. Highway spending accounted for the entire gain from January to March.

Construction Employment

Contractors hired only 6,000 people in April and only 12,000 in the last two months. Almost all of the new jobs are on nonresidential building projects. Employment at heavy contractors has been steady for the last three months. A longer work week pushed total construction work hours up 0.7% in April, which is a reliable signal that construction activity continues to expand. Average hourly earnings in construction are essentially unchanged so far this year.

Construction Equipment Shipments

Shipments by U.S. manufacturers increased 6.3 percent in the first quarter and are 20.8-percent higher than 2005. The winter sales surge was enough for manufacturers to trim unfilled orders by 2 percent and boost their slim inventories by 1.3 percent. New orders declined 1.8 percent in the first quarter, but the small decline may have been due to slightly shorter delivery lead times. Smaller gains in shipments are expected during the spring and summer.

New Residential Construction Spending

Construction increased 0.7 percent in March, a sharp slowdown from the nearly 15-percent rise over the past year. The small month-to-month gain was mostly due to inflation for single-family homes, although spending on multifamily projects increased at a 24 percent annual pace following a surge in starts that began late last year. Spending is at or near its peak for this building cycle and is expected to decline 5 percent by late next year.

Private Construction Spending

Spending increased at a 13.5 percent annual pace for the last six months, but that will be halved through the end of 2007 as the small decline in residential spending more than offsets the large increase in spending for nonresidential and heavy construction projects. Cutbacks and delays of private nonresidential projects whose costs are exceeding plans will also contribute to slow expansion.