US construction spending slips in July

By Richard High03 September 2008

US Construction spending slipped -0.6% in July to US$ 1.08 trillion at a seasonally adjusted annual rate (SAAR), according to the latest report from the country's Census Bureau. Year-to-date (YTD) spending in the first seven months of 2008 was down -5.4% from the same period of 2007.

The declines, said the report, were concentrated in private residential spending, which fell -2.3% for the month and -28% YTD.

Commenting of the latest figures Ken Simonson, chief economist for the Associated General Contractors of America (AGC), said, "Nonresidential construction spending continued growing in July, despite the weak economy and housing slump, but Congress must act promptly to avert layoffs in power and highway construction.

"Although the headline figure showed a drop of -0.6% in total construction put in place in July, the bad news was limited to residential spending, which tumbled -2.1%. The report included a huge upward revision in June and May nonresidential spending, and yet the July figure was still -0.2% higher than the new June total," said Mr Simonson.

Although private nonresidential spending fell -0.7% in July it rose +19% YTD, and public construction spending climbed +1.4% and +7.5% (YTD). Despite the weaknesses in July, every private nonresidential category is up YTD except religious structures, the segment most closely tied to new residential development, said the report.

The largest YTD gains among major nonresidential segments were in manufacturing (refineries, biodiesel, cement, steel and transportation equipment plants), up +46%; hotels, up +38%; power (power plants, transmission lines, wind and other renewable power facilities), up +33%; and office, up +16%. The other large nonresidential groups showed more modest gains: education was up +9.7%; while highways and streets rose +3.2%; and commercial (retail, wholesale and farm), was up +3.0%.

"The most robust category so far this year has been manufacturing, which jumped +46%, thanks to some massive refinery projects but also steel, cement and other plants. That work should continue at a high level through 2009," said Mr Simonson.

"Power construction-power plants, transmission lines and wind farms-jumped by a third through July and may accelerate further in 2009 as more projects move from design and permitting into construction," predicted Mr Simonson. "However, wind turbine projects will halt soon if Congress doesn't renew the production tax credit."

Mr Simonson also warned that immediate action from Congress is needed with regards to highway funding. "The steep drop in gas tax receipts this year means federal highway trust fund payments to states may be delayed as early as next month. If that happens," warned Mr Simonson, "contractors will be forced to lay off workers by November."

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