Nonresidential Construction Spending Inches Up in May

Showing yet another sign of slow economic recovery, the nation’s nonresidential construction spending inched up 0.1% in May, according to a July 2 report by the U.S. Commerce Department. On a year-over-year basis, Associated Builders and Contractors (ABC) reports that nonresidential construction spending was down 2.9% in May, with spending totaling $546.3 billion on a seasonally adjusted, annualized basis. A 1.8% increase in public nonresidential construction spending barely offset the impact of a 1.4% decline in spending on privately financed nonresidential construction projects. Private nonresidential construction spending is down 0.9% while public nonresidential construction spending is down 4.9%. Total construction spending — which includes both nonresidential and residential spending — was up 0.5% for the month and is up 5.4% from May 2012.

“For much of the past year, privately financed activities have been recovering in conjunction with the nation’s moderate economic recovery, while publicly financed construction had been in decline — a reflection of constrained public capital budgets,” said Associated Builders and Contractors Chief Economist Anirban Basu. “However, in May two large segments closely associated with public financing, water supply and transportation, experienced a material rise in activity. At the same time, private activity declined in the aggregate, including the manufacturing, communication, and commercial categories."

According to Basu, this trend is unlikely to emerge as a stable pattern. “The economy has now entered its fifth year of economic recovery, and many economic forecasters expect an acceleration of growth later this year and in 2014," he said. “That should help boost private construction activity. Meanwhile, sequestration is ongoing and state and local government capital budgets continue to be constrained by rising Medicaid, pension, retiree health care, and other costs. Consequently, May is likely to prove an aberration."

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