Overall Construction Spending - Good; Residential Construction Spending - Not so Good

As reported by the National Association of Home Builders, overall construction spending is improving, but residential construction spending continues to struggle.

The Census Bureau reported that the Value of Construction Put in Place improved in August, rising 0.4% to $811.8 billion from an upwardly revised $808.6 billion in July. Despite the modest gain, construction spending was down 11.2% year-to-date from a year earlier.

The monthly increase was driven by a 2.5% rise to $313.6 billion in public construction spending — which included strong gains in public residential construction (up 6.7%), commercial (up 8.2%), healthcare (up 5.1%) and road construction (up 5.0%). With funding from American Reinvestment and Recovery Act continuing to roll out, public construction spending should continue at a healthy pace in the near term.

Much of the increase in public construction spending was offset by a 0.9% decline in private construction spending — the fourth consecutive month it has fallen. At $498.2 billion, this spending was at its lowest level since January 1998.

Much of this decline was in private non-residential construction spending, which fell 1.4% to $259.7 billion. Spending was down in the power (2.9%), commercial (2.8%), transportation (1.8%) and communication (1.8%) sectors.

Overall private residential construction spending fell 0.3% in August, with single-family construction spending slipping 4.2% to $109.5 billion, just above its October 2009 level. This was expected, given the decline in single-family housing starts since the conclusion of the home buyer tax credit in April.

However, the rise in single-family housing starts in August signals that the payback from the home buyer tax credit may be drawing to an end, and we can expect to see the value of private single-family residential construction put in place to stabilize soon.

Private multifamily construction spending also fell sharply in August — down 11.4%. This more than offset the marginal increases in June (0.3%) and July (0.6%) and, at $11.85 billion, is just above its February 1994 level.

With multifamily housing starts exhibiting a modest upward trend in recent months, the multifamily value put in place numbers should begin to move higher in the next few months.