Construction Spending Declines in June

Words: Angelo MiscelliConstruction spending decreased in June for the third month in a row but most segments posted solid increases in the first half of 2016 compared to the same period in 2015, according to an analysis by the Associated General Contractors of America. Association officials said spending appears to have leveled off after a strong early start to the year prompted by mild winter weather conditions in many parts of the country.

“The drop in construction spending over the past three months is probably more a reflection of the very strong gains posted early in the year than of cooling demand for construction,” said Ken Simonson, the association's chief economist. “Nearly every major segment had first-half gains of more than five percent compared with a year ago. Contractors, surveys and the media all continue to report plenty of projects are starting or will soon.”

Construction spending in June totaled $1.134 trillion at a seasonally adjusted annual rate, 0.6 percent lower than the May total, Simonson said. He noted that the declines in spending from March to June followed unusually large increases in the previous three months, probably because of exceptionally mild winter weather in some regions. He said the year-to-date increase of 6.2 percent for January through June 2016, compared with the same months of 2015, provides a truer picture of the industry’s condition.

Private residential spending was virtually unchanged for the second month in a row and 7.8 percent higher year-to-date. Spending on multifamily residential construction slid 1.5 percent for the month but soared 22 percent year-to-date, while single-family spending fell 0.4 percent from May to June but rose 11 percent year-to-date.

Private nonresidential construction spending decreased 1.3 percent for the month but climbed 7.9 percent year-to-date. The largest private nonresidential segment in June was power construction (including oil and gas pipelines), which slipped 0.7 percent for the month but rose 8.2 percent year-to-date. The next-largest segment, manufacturing, lost 4.5 percent for the month and 2.7 percent year-to-date. Commercial (retail, warehouse and farm) construction declined 1.6 percent in June but climbed 8.6 percent year-to-date.

Public construction spending declined 0.6 percent from a month before but was still up 1.5 percent for the first five months of 2016 combined. The biggest public segment–highway and street construction–shrank by 1.4 percent for the month but was up 3.9 percent year-to-date. The other major public category–educational construction–dipped by 0.5 percent in June but gained 5.9 percent for the combined January-June period.

Association officials contractors continue to report strong demand in many parts of the country and appear to continue to struggle to find enough workers to keep pace with demand for construction. They urged Congress to act on legislation to reform and boost funding for career and technical education, known as the Perkins Act, as quickly as possible.

“We continue to worry that the slowdown in hiring and spending has more to do with the fact contractors don’t have enough workers than the fact there isn’t enough work out there,” said Stephen E. Sandherr, the association’s chief executive officer.

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