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Sept. 5, 2006: Nonresidential Construction Shows Ongoing Vigor, Says AGC Economist

September 5, 2006
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WASHINGTON - Two economic reports "show how much vigor private nonresidential construction has," said Ken Simonson, chief economist for the Associated General Contractors of America (AGC). Simonson was referring to the Sept. 1 reports from the Bureau of Labor Statistics (BLS) on construction employment in August and from the Census Bureau on construction spending in July.

"BLS reported that construction accounted for 17,000 of the 128,000 net new payroll jobs that the nonfarm economy added in August," Simonson observed. "Over the past 12 months, all five BLS construction categories have grown faster than the tepid 1.3 percent growth rate for overall employment. Nonresidential building and specialty trades were both four percent higher, residential building climbed 3 percent, and residential specialty trades and heavy and civil engineering both added 2 percent. In a favorable omen for future construction, employment in architectural and engineering services rose again, bringing the 12-month gain to a robust 5 percent.

"The Census report on value of construction put in place showed a sharp 1.2 percent drop in the seasonally adjusted annual rate from June to July, but private nonresidential spending increased again," Simonson commented. "For the first seven months of 2006 compared to the same period of 2005, private nonresidential spending has risen an impressive 16 percent and public construction 10 percent. Even residential construction is still 4 percent ahead of last year's total for the first seven months, although I don't expect the final residential total for the year to be up.

"Among major subcategories of private construction spending, the areas of greatest strength include lodging, up 46 percent year-to-date; multi-retail - general merchandise stores such as 'big-box' and discount retailers, shopping centers and malls - up 38 percent; hospitals, 27 percent; manufacturing, 24 percent; multi-family residential, 20 percent; and warehouses, other than mini-storage, 17 percent," Simonson added. "Office construction is also gaining momentum, with a 12 percent increase, and electric power construction is reviving, with an 8 percent rise.

"On the public side, highway and street construction has a 17 percent increase so far this year, while educational is up 6 percent," Simonson pointed out. "These sound positive but are actually about level with last year in inflation-adjusted terms, given the 15 percent jump in producer prices for highway and street materials and the 8 percent rise in costs for nonresidential building materials."

"In the next several months, I expect private nonresidential construction to maintain its strong pace," Simonson concluded. "Private residential construction will be a mix of increasing rental projects and sharply falling single-family and condo construction. Public agencies will spend somewhat more, but many agencies will have to defer or redesign projects for which materials costs outstrip their budgets."

Publication date: 09/04/2006

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