Construction spending declines for third straight month

Construction activity dropped 0.9 percent from April to May, despite the $1.1 trillion seasonally adjusted annual total. It was the first time since mid-2002 construction spending had fallen three straight months.

April’s revised total was marked up to $1.11 trillion from an initial estimate of $1.07 trillion. While the unrevised data showed 15 straight months of record spending, the new numbers show a large jump from January to February 2005, followed by three months of modest declines. A 7 percent drop in residential improvements accounted for most of the decline from April to May, but most private nonresidential categories also slipped for the month.

According to a report released by the U.S. Census Bureau July 1, private construction dropped 1.6 percent overall to an annual rate of $856.2 billion. Housing activity decreased 1.7 percent to an annual rate of $614.3 billion, while nonresidential construction was down 1.6 percent to $241.9 billion. The report cited weaknesses in office, commercial and factory construction.

Government building projects broke previous records by rising 1.7 percent to an annual rate of $246.8 billion. State and local building was up 1.7 percent while federal building projects rose 0.7 percent. Manufacturing construction increased 10 percent in 2004 and a further 29 percent year-to-date in 2005, said Ken Simonson, chief economist for the Associated General Contractors of America.

Economists had predicted construction would climb to a record level in May, rising by 0.5 percent, but Simonson said the results are not a complete downfall.

“Surprisingly, private residential construction has been slipping, according to the revised data, (but) nevertheless, the totals for January through May are a respectable 6 percent higher than during the same months of 2004,” he said.

Simonson said public construction was also 6 percent ahead of 2004 statistics in May, with gradual expansion showing up each month.

You can reach Ebony Horton at ehorton@randallpub.com.