Construction Spending Slips in November but Rises From Year-Ago Level

(January 2, 2013) – Construction spending dipped from October to November, but resolution of the uncertainty regarding federal taxes for 2013 should unleash more private construction investment, according to an analysis of new federal data released by the Associated General Contractors of America. Association officials warned, however, that unresolved issues about federal construction spending, including storm relief for northeastern states, will hold down public construction spending.

“Preliminary data from the Census Bureau for November shows overall construction spending slipped 0.3 percent from October’s total after seven months of steady gains,” said Ken Simonson, the association’s chief economist. “The more significant comparison, however, is with year-ago levels, and the November report shows a respectable 7.7 percent gain over the past 12 months.”

Simonson noted that private single- and multi-family spending continued growing strongly. Spending on new single-family houses climbed 1.3 percent for the month and 29 percent year-over-year, while multi-family spending rose 0.5 percent and 46 percent, respectively.

“Private nonresidential construction has been in a holding pattern for the past several months, but last night’s passage of a tax bill should encourage many businesses to go ahead with projects they have held in reserve,” Simonson predicted. “Despite a drop of 0.7 percent in November, the year-over-year total was up by 8.2 percent, and this figure appears poised to return to double-digit percentage gains in the next few months.”

Simonson pointed out four categories of private nonresidential construction that posted increases of more than 10 percent between November 2011 and November 2012, although results for the latest month were mixed. Lodging construction declined 1.3 percent for the month but jumped 26 percent over 12 months. Office construction shrank 0.9 percent from October but grew 17 percent from November 2012. Private transportation construction, principally by rail and trucking companies, added 3.4 percent for the month and 16 percent year-over-year. Power and energy construction, including spending on oil and gas fields and pipelines, contracted 1.4 percent from October but rose 14 percent over 12 months.

Simonson observed that public construction spending, which has alternated between monthly increases and decreases in 2012, sank 0.4 percent in November and 2.6 percent year-over-year. He said the two biggest categories of public spending both rose for the month but declined from November 2011 levels. Highway and street construction spending was up 0.5 percent from October but down 6.0 percent from a year ago, while educational construction spending rose 0.1 percent for the month but fell 3.4 percent from year-ago levels.

Stephen Sandherr, chief executive officer for the construction trade association, urged Congress and the administration to make infrastructure investment a top priority in 2013. “Congress and the president have provided some tax certainty that provides a foundation for economic growth. But their jobs are far from completed. It is vital that the states devastated by Hurricane Sandy receive funding immediately for recovery work. In addition, lawmakers should not target construction spending for further cuts when they turn to spending decisions in the next two months.”