Construction spending declines in June

Overall construction spending dropped 0.3 percent in June compared to May, marking a fourth consecutive month of decreased activity. The U.S. Department of Commerce estimated total spending for the month at a seasonally adjusted annual rate of $1.093 trillion.

Still, the figure is 7.9 percent higher than the total for June 2004. During the first six months of this year, $514.8 billion was spent on construction projects, 9.3 percent more than spending during the first half of last year.

With a 0.5 percent drop to $249.2 billion, public construction spending took a heavier blow than private construction. The amount of money spent on school construction decreased 1.2 percent, while highway construction dropped 0.4 percent.

Private construction spending fell 0.2 percent to $843.8 billion. Residential construction dropped 0.4 percent, while nonresidential private construction increased 0.2 percent. Spending was cut back for construction of factories, hotels and power plants. The amount of money spent on office buildings and transportation facilities increased.

For the first half of 2005, spending for residential construction was up 12 percent, private nonresidential spending was up 6 percent, and public spending was up 7 percent. The largest increases were in manufacturing, up 28 percent, multi-retail, up 22 percent, multi-family housing, up 19 percent and communication, up 15 percent.

Ken Simonson, chief economist for the Associated General Contractors of America, said private residential construction will likely shrink gradually over the next year, but won’t crash because of long-term interest rates and “backlogs of unused permits.”

“There are plenty of indicators that activity will gain momentum in the second half of 2005 and beyond,” he said. “(Reports) on gross domestic product showed that consumers, businesses and governments are investing. The enactment of the highway and energy bills should give a long-term boost to several types of construction.” In addition, many states have reported large increases in revenue that will allow public construction spending to expand over the next year or two.

On July 29, Congress approved the long-awaited SAFETEA-LU highway bill, which will pump $286.5 billion over six years into the Highway Trust Fund for highway and transit construction projects and safety programs. Congress also approved a national energy bill that will ultimately increase domestic production of conventional fuels and provide funds for the modernization of U.S. energy infrastructure.

Simonson said high material costs and widespread tight supplies of cement are still the biggest concern in the construction industry. Manufacturers’ purchasing managers who responded to a recent survey noted price increases for diesel fuel and freight, copper and some types of steel, all of which are important to contractors, he said.

Construction spending surged to an all-time high of $1.13 trillion, adjusted annually, in February.

You can reach Ebony Horton at [email protected]