Construction Spending Edges Up

September construction spending advanced by 0.6% from August to reach an annualized rate of $851.6 billion, and is 7.8% above the September 2011 estimate of $790.3 billion. (Because the numbers can be volatile from month to month, especially for the subcategories, year-over-year comparisons are helpful to consider.) The increase in construction spending was primarily in private residential (both single family and multi-family), which climbed 2.8% for the month, and is 20.9% higher than a year ago. Meanwhile, private non-residential construction spending fell by 0.1% to $294.6 billion, though it is up 8.8% from a year ago. Public construction fell 0.8% to $271.1 billion, now down 4.2% from last September. Private residential construction has been on a tear over the past twelve months. As inventories in the purchase market have fallen, in part due to investors' purchases of distressed properties, builders have responded by putting up supply of new houses and apartments. Construction of single-family homes advanced by 3.9% to $137 billion in September, and is now up 25.7% from September of 2011. Meanwhile, apartments and other multi-family building activity edged up 1.3% from August, and surged 48.9% from a year ago. (Multi-family construction is a smaller component of new construction, at $22.6 billion in September, and can be volatile from month to month.) Businesses were a bit less enthusiastic in the past month. Spending on commercial projects, including shopping centers, fell by 3.8% on the month, but is up 4.4% from a year ago. This year-over-year spending growth roughly corresponds to nominal sales growth of some chain-store sales metrics. Note that obsolescence of structures is not reflected in these spending categories, so some of the spending on construction is replacement or refurbishment of existing properties. Office construction fell 0.4%, though it is 16.2% higher than last year. Construction of manufacturing facilities increased by 3.8% in September and grew by 1.3% from a year ago. Lodging, private educational and healthcare construction posted declines in spending for the month, though all are up from last year. On the other hand, transportation, communication and power facilities all racked up spending increases in September. The public space is where the impact of tight budgets can be felt. The two biggest categories posted declines. Spending on new schools and other educational buildings fell by 0.8% in the month, down 6.9% for the year. Highway and street spending fell 1.6% for the month and dropped 2.4% for the year. Smaller categories were mixed. Sewers and waste disposal spending fell 0.7% for the month and is off by 3.0% for the year; water supply project spending was flat for the month and down 10.2% for the year. This is interesting, considering the advance in residential construction. Oftentimes, housing developments sometimes require new investments in roads, sewers and water lines. However, other categories of transportation, such as airports, increased 0.9% higher on the month, up 7.0% since a year ago. And amusement and recreation (think parks) spending advanced strongly. However, going forward, tight budgets across all levels of governments may keep public construction spending restrained, especially if we go over the fiscal cliff in 2013.