Construction spending sets new record in August

Even though Hurricane Katrina succeeded in disrupting construction activity during August, construction spending for the month still managed to set a record high, according to figures the U.S. Commerce Department released Oct. 3.

The $1.108 trillion annual rate for August was .4 percent above the revised July estimate of $1.104 trillion and 6.1 percent above the August 2004 figure of $1.04 billion. During the first eight months of the year, construction spending amounted to $723.7 billion, 9 percent above the $664.2 billion for the same period in 2004.

While this news may bode well for the rest of the country, the outlook is not as bright in areas affected by recent hurricanes, said Ken Simonson, chief economist for the Associated General Contractors of America.

“Construction activity will be affected for many months to come by the traumatic impacts of Katrina and Rita,” he said. “Contrary to what some people have said, I do not expect a quick rebound in construction in the hurricane zone.”

Even with lots of emergency work underway, it will be months or even years before residential and private nonresidential construction begin in the hurricane-affected regions, Simonson said, adding that much of that construction will only substitute for new construction that would have happened in the absence of the hurricanes, preventing a net gain. Simonson said the scenario will cause economic activity, including construction, to grow slowly nationwide.

Although national growth may be slow, areas near the Gulf Coast that managed to dodge the hurricanes may experience a slight boost. “There will be a pickup in construction in regions where individuals and businesses relocate,” Simonson said. “Also, selected industries will add production capacity to serve the needs of the refugees.” These industries will include companies making manufactured housing, temporary offices and classrooms, and truck trailers and bodies.

Funding projects will be difficult because of the price of construction materials. The loss of oil and natural gas production will affect supplies and prices of diesel fuel, asphalt, roofing materials, insulation, PVC pipe, membranes, coatings and assorted construction plastics, Simonson said.