Construction Spending Makes Surprising Jump in May

WASHINGTON, DC-The Associated General Contractors of America points to a surprising—and rare—green shoot of economic activity after weeks of discouraging indicators. Construction spending in May reached the highest level since December 2009, fueled by a robust private-sector pipeline, especially in the residential and multifamily sectors, it reports after analyzing federal data. This growth was strong enough to offset the ongoing decline in public-sector building.

The analysis follows the recent enactment of a federal highway and transportation bill that slightly increases spending over the next two years and three months. Despite the certainty of having a federal budget in place—after nearly three years of temporary extensions--the association’s analysis still points to a construction sector that will continue to be fueled by private activity. It found that residential construction rose 3% in May and 8% year-over-year. New multifamily construction rose by 6% and an eye-popping 50%, respectively, while single-family homebuilding was up 2% and 15%. By contrast, public construction dropped for the fifth consecutive month in May, falling 4% below the May 2011 level.

“It is encouraging to see such a broad-based pickup in private construction,” said Ken Simonson, the association’s chief economist, in a prepared statement.

The largest public category, highway and street construction, dropped 0.5% from April but was up 2% year-over-year. The second-largest segment, educational construction, fell 3% and 7%, respectively.

“Based on the number and variety of projects that have been announced in recent months, I expect the private nonresidential sector to keep posting hefty gains for the rest of 2012 and beyond,” Simonson said. Apartment construction and single-family homebuilding together should mean that total construction spending in 2012 will be positive for the year for the first time since 2007, Simonson said--despite ongoing weakness in public construction.