New Building Spending Rises In August, But Weakness Prevails

In the second unexpected surprise for construction industry watchers in two weeks, nonresidential construction spending rose 1.6% in August from the previous month to an annual rate of $553 billion, according to the U.S. Commerce Department. According to Census Bureau data released this week, private nonresidential construction spending inched up 0.2% in August and is 5.6% higher from a year ago, while public-sector construction spending rose a strong 3.1% -- the largest monthly gain since February 2009 -- to an annualized $288.2 billion in August. However, spending for publicly financed structures like bridges, hospitals, schools, roads and highways, sewers, water systems and government buildings remains down 6.3% compared to the same period last year, even as private-sectors project demand has steadily increased, according to the Associated General Contractors of America (AGC). Private residential and nonresidential project spending is up 5.6% year to date from 2010 and inched up a modest 0.4% between July and August, from $508.9 billion to $511 billion. "Over the past month, both publicly and privately financed construction spending grew -- an indication that recessionary forces are being held at bay for now," said Anirban Basu, chief economist for the Associated Builders and Contractors (ABC), which represents primarily construction-related firms in the industrial and commercial sectors. The increase in project spending is the second bit of good news for the beleaguered construction industry in recent weeks. The Architecture Billings Index, a leading indicator of future construction spending, showed increased demand for the services of architects in August for the first time in four months, according to the American Institute of Architects (AIA). Although analysts expect nonresidential spending to strengthen through 2012 from near-zero levels over the last two years, commercial developers will slow down some projects already started and delay projects scheduled to start due to concerns about the economy and a further contraction in the availability of construction financing. Monetary policy makers hope a lowering of long-term interest rates will create liquidity in construction and mortgage funding.