January Construction Spending Declines

Construction spending decreased in January compared to the increases seen in November and December.

Construction spending inched down less than 0.1% in January, following a large upward revision in December and November, according to a new analysis of federal data released by the Associated General Contractors of America (AGC). All forms of residential construction did well for the month and year-over-year, while private nonresidential spending was mixed and public construction declined amid continued congressional delays in passing a host of long-term infrastructure and tax measures.

“The strong gains in single-family homebuilding in December and January probably have a lot more to do with the unusually mild weather compared to year-ago conditions, than surging demand for new homes,” says Ken Simonson, the association’s chief economist. “Meanwhile, private nonresidential activity dropped after an exceptionally large jump in December, but the January total was still up an impressive 17% from a year ago.”

Simonson notes that private residential spending, which climbed 1.8% for the month and 6.7% compared with January 2011, was higher across-the-board. New single-family construction posted gains of 2.5% for the month and 5.5% over 12 months; new multi-family construction was up 0.7% and 20%, respectively; and improvements to existing residential structures moved up 1.3% and 6.4%.

Private nonresidential spending was at the second-highest level since December 2009, despite the 1.5% pullback in January, Simonson notes. The largest private category, power construction—which includes shale-related activity as well as traditional and renewable electric power—dropped 1.8% in January but was up a robust 28% over 12 months. Simonson also cited large year-over-year gains for the next three-largest types: manufacturing construction (-5.9% for the month, +38.5% over 12 months); commercial—retail, warehouse and farm—construction (-1.0% for the month, +8.5% over 12 months); and health care construction (up 1.7% and 12.5%, respectively).

Simonson notes that public construction spending was nearly flat in January, declining 0.2% from December and 0.5% from January 2011. Highway and street construction, the largest public category, edged down 0.2% for the month but climbed 4.5% year-over-year, while other transportation spending—comprising transit, ports, airports and passenger rail—rallied 2.5% for the month but tumbled 10% from a year ago.

Association officials say that despite growing private sector demand, the construction industry was being held back by partisan gridlock in Washington. They say the fact that Congress has failed to enact a host of long-term infrastructure and tax measures was making it hard for many firms to make business investment and hiring decisions.

“Construction firms fear two things: declining demand and market uncertainty,” says the association’s chief executive officer, Stephen E. Sandherr. “Unfortunately, Washington’s failure to enact long-term investment and tax measures is delivering drop in construction activity and making it impossible for contractors to make investment, hiring and many other fundamental business decisions.”