WASHINGTON - The Oct. 31 reports on gross domestic product and construction spending from the Commerce Department “provided a real treat to the economy in the third quarter,” according to Ken Simonson, chief economist for the Associated General Contractors of America (AGC).

“Net of inflation, or real, investment in private nonresidential structures jumped 12 percent in the third quarter, the eighth straight quarter this investment category has outpaced gross domestic product growth,” said Simonson. “You have to go back to the mid-1950s to find another period when private nonresidential construction was so persistently robust.”

The Census Bureau’s construction spending report showed that private and public nonresidential construction climbed 1.8 percent for the month of September and 17 percent over the past 12 months. According to Simonson, these numbers were enough to overcome the 1.4 percent fall in residential spending for the month and nearly offset the 16 percent residential drop from 12 months ago.

“There was nothing scary in the nonresidential categories, even for credit-sensitive commercial types,” Simonson observed. “All 16 census categories were up for the month, and all but religious structures were higher on both a September-over-September and a year-to-date basis.

Simonson predicted that investment would slow over the next several months in income-producing properties such as office, hotel, and retail structures, however, he expected accelerating investment in energy and power projects, plus continued strength in hospital and educational construction, to keep the nonresidential totals up.

“My biggest concern is higher costs,” Simonson concluded.

“Diesel prices, which affect contractor’s trucks and fuel surcharges on delivery of materials, are 25 percent higher than a year ago and seem poised to rise further. Other materials, especially imports, are likely to accelerate as well. And construction wage rates are going up faster for the economy as a whole. But public agencies, from transportation departments to county councils, have failed to budget enough for construction cost escalation, and instead are trimming projects.”

For more information, visit www.agc.org.

Publication date: 11/12/2007