Private Nonresidential Construction Shows Vigor: AGC

Sept. 1 reports from the Bureau of Labor Statistics on construction employment in August and from the Census Bureau on construction spending in July "show how much vigor private nonresidential construction has," said Ken Simonson, chief economist for the Associated General Contractors of America.

"BLS reported that construction accounted for 17,000 of the 128,000 net new payroll jobs that the non-farm economy added in August," he said in early September. "Over the past 12 months, all five BLS construction categories have grown faster than the tepid 1.3% growth rate for overall employment. Nonresidential building and specialty trades were both 4% higher, residential building climbed 3%, and residential specialty trades and heavy and civil engineering both added 2%. In a favorable omen for future construction, employment in architectural and engineering services rose again, bringing the 12-month gain to a robust 5%."

The Census report on value of construction put in place, he noted, showed a sharp 1.2% drop in the seasonally adjusted annual rate from June to July, but private nonresidential spending increased again. For the first seven months of 2006 compared to the same period last year, private nonresidential spending has risen 16% and public construction 10%.

"Even residential construction is still 4% 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," Simonson said.

Among major subcategories of private construction spending, the areas of greatest strength include: lodging, up 46% year-to-date; multi-retail - general merchandise stores such as "big-box" and discount retailers, shopping centers and malls - up 38%; hospitals, up 27%; manufacturing, up 24%; multifamily residential, up 20%; and warehouses, other than mini-storage, up 17%, Simonson added.

"Office construction is also gaining momentum, with a 12% increase, and electric power construction is reviving, with an 8% rise," he said.

On the public side, highway and street construction has a 17% increase so far this year, while educational construction spending is up 6%, Simonson said.

"These sound positive but are actually about level with last year in inflation-adjusted terms, given the 15% jump in producer prices for highway and street materials and the 8% rise in costs for nonresidential building materials," he noted.

"In the next several months, I expect private nonresidential construction to maintain its strong pace," Simonson said. "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."