Construction spending declines for third straight month

Aug. 3, 2016

Construction 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 5% 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% 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% 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% higher year-to-date. Spending on multifamily residential construction slid 1.5% for the month but soared 22% year-to-date, while single-family spending fell 0.4% from May to June but rose 11% year-to-date.

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

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