Construction Spending Level Tumbled in January from Upwardly Revised December Total

(March 1, 2013) – Construction spending snapped a nine-month string of monthly gains with a sharp decline in January but still rose from year-ago levels, according to an analysis of new Census Bureau data by the Associated General Contractors of America. Association officials cautioned that “across-the-board” federal spending cuts known as sequestration, which took effect today, along with a possible shutdown of the federal government later this month, could hit construction harder than most sectors and dampen demand for needed projects.

“At first glance, January was a bad month for construction, with a sharp drop in private nonresidential spending, along with small dips in residential and public construction,” said Ken Simonson, the association’s chief economist. “However, the January figure was higher than the year-ago level. Moreover, steep upward revisions today in the preliminary numbers for November and December suggest January may ultimately prove to have been positive, as well.”

Construction put in place totaled $883 billion in January, down 2.1 percent from the December total, which was marked up from an initial estimate of $885 billion to $903 billion on the basis of new data on power and energy construction. The January 2013 total was 7.1 percent higher than in January 2012. Private residential construction spending was flat for the month and up 22 percent year-over-year. Private nonresidential spending slumped 5.1 percent for the month but climbed 4.0 percent year-over-year. Public construction spending dropped 1.0 percent for the month and 3.0 percent over 12 months.

“Once more complete data is available, power construction should prove to be a strong category in 2013, along with manufacturing, multifamily and—at least in the first half of the year—single-family construction,” Simonson said. “But public construction, which has declined year-over-year for 28 straight months, appears to be headed still lower.”

Association officials said the cuts in federal spending known as sequestration that initially took effect today, along with a possible shutdown of the federal government when the current, short-term spending authority expires on March 27, would hit construction especially hard. A recently released association analysis indicated an estimated $4 billion worth of federal construction projects will be cancelled this year alone because of the sequestration. They urged lawmakers to adopt a budget that makes needed investments in infrastructure projects.

“These indiscriminate cuts run the risk of undermining the fragile recovery in demand many contractors are just now beginning to experience,” said Stephen E. Sandherr, the association’s chief executive officer. “It is hard to encourage major new private sector investments in capital projects when Washington can’t even find a way to avoid fiscal crises of its own making.”