Is There a Chill in the Ground?
For months, nonresidential construction gained momentum, even as residential spending gained speed in the opposite direction. But on December 1, the Census Bureau reported that seasonally adjusted nonresidential spending was flat in October and fell in September, whereas September had initially been estimated as an increase. Meanwhile, residential spending tumbled another 1.9 percent, dragging down total construction spending by 1.0 percent, the steepest monthly drop in five years. (Seasonal adjustment removes normal month-to-month variation to reveal one-time changes or new trends.)
Several spending categories that had been doing well have now reversed course. Manufacturing construction dropped more than four percent in September and three percent in October. Commercial and office construction each slipped one percent in October. The power category, which had begun a rebound from a multi-year slump, plunged seven percent in September and 0.7 percent more in October.
McGraw-Hill Construction reinforced the gloomy tone with a report on November 30 that new contracts fell four percent in October, with the downturn almost equally divided among its three categories: residential and nonresidential building and nonbuilding construction. On December 1, the Institute for Supply Management’s monthly survey of manufacturing purchasing executives reported a less-than-breakeven total in November for the first time in 42 months. Earlier, the Census Bureau reported a big drop in factory orders in October.
Other indicators still suggest nonresidential construction should remain positive. The Federal Reserve’s November 29th “Beige Book,” a summary of conditions reported by businesses in informal surveys conducted through November 20 by the 12 regional Federal Reserve Banks, found “nonresidential activity generally improved. [The Atlanta regional bank] noted that the overall level of nonresidential construction remained modest. In the San Francisco District, commercial and public project activity continued to expand, although the pace of growth was slower than earlier in the year.” The Bureau of Economic Analysis reported on November 30 that personal income rose 0.4 percent in October and on November 29 that both corporate profits soared in the third quarter.
To date, AGC members have not been signaling that a contraction has set in. But they may have to hunt a little harder to keep their order books full.
Let Ken Simonson know what you are experiencing. E-mail him at email@example.com. He’ll summarize the replies (anonymously) in a future “Simonson Says” and podcast. For a list of all AGC podcasts, visit www.agc.org/podcast.
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