Construction Activity Dips on Lower Government Spending

Lower construction on public projects, such as roads and schools, contributed to a drop in construction activity in March. The U.S. Census Bureau of the Department of Commerce reported that construction spending during March 2013 was estimated at a seasonally adjusted annual rate of $856.7 billion, 1.7 percent below the revised February estimate of $871.2 billion. Construction spending is down from the end of 2012. During both November and December, spending was roughly around $893 billion in each month at a seasonally adjusted annual rate. However, the March figure is 4.8 percent above the March 2012 estimate of $817.8 billion. During the first 3 months of this year, construction spending amounted to $181.7 billion, 4.7 percent above the $173.6 billion for the same period in 2012, not annualized. Note, however, that the range of confidence around the estimates for some of these data can be notable. And the monthly numbers can bounce around a bit, independent of a longer term trend. As such, the pullback in construction comes with a caveat. Decreases in non-residential construction activity were widespread, ranging from offices to stores to sewage and water projects. The only two sectors posting increases were lodging and communications. However, private construction showed relatively better results than public construction.

Spending on private construction was at a seasonally adjusted annual rate of $598.4 billion, 0.6 percent below the revised February estimate. This drop was entirely on non-residential projects. However, private construction in March was 9.8 percent above year-ago levels Residential construction was at a seasonally adjusted annual rate of $294.9 billion in March 0.4 percent above the revised February estimate. Single family home construction increases by 1.6 percent, with multi-family construction spending increasing by 0.3 percent. This corresponds, generally, to increased home purchases and housing starts, as we see in other data. Given low levels of inventory of homes for sale, especially single family homes, new construction is perhaps welcome news to would-be home buyers. Nonresidential construction was at a seasonally adjusted annual rate of $303.5 billion in March, 1.5 percent below the revised February estimate. This may reflect caution on the part of businesses ahead of the sequester, though these projects were likely planned many months in advance. Companies did invest more in offices and hotels, but less in manufacturing facilities and commercial outlets, such as stores and warehouses. These data correspond to other data showing more hiring in the services sector than in manufacturing.

In March, the estimated seasonally adjusted annual rate of public construction spending was $258.3 billion, 4.1 percent below the revised February estimate, and is down 5.4 percent from a year ago. Educational construction was at a seasonally adjusted annual rate of $62.8 billion, 2.9 percent below the revised February estimate. Highway construction was at a seasonally adjusted annual rate of $73.8 billion, 5.2 percent below the revised February estimate. Other than healthcare facility spending and the category of “commercial,” all other areas of public construction posted decreases. This shows the effects of government cutbacks with the sequester. As less money flows from the federal government into state and local governments, highway spending and school construction would tend to contract in tandem. Of course, state and local governments have had long-standing challenges, and funding from their own coffers may be insufficient to counter assistance from the federal government.