Domestic Construction Spending Hits Four-Year High

domestic constructionPrivate building and energy industry construction is big – public works is not

A study known as the ”value of construction put in place survey” provides a monthly estimate of the total dollar value of construction work done across the U.S. This survey includes construction activities completed each month on new structures or improvements to existing structures – on both the private and public side of the market. Estimates typically include the cost of labor and materials, of architectural and engineering requirements, all overhead costs, interest on loans and taxes paid during construction, and a standardized contractor’s profit margin. The value of construction put in place survey has been conducted each month since 1964.

As the survey closed during the month of July, industry analysts were pleased to discover that US domestic construction spending hit a four-year high. With more than $901 billion in construction put into place, this dollar amount represents a 0.6% increase from the month before, and a 5.2% lift from July 2012. Spending on the private residential side increased by 0.6% month over month, and 17% from the previous year. New single-family construction also increased by 0.5% from the previous month, with a huge increase on a year over year basis – 29%! New multifamily increased by a small margin from the previous month, but a full 39% more is being spent on multifamily this year than last (based on July ’12 to July ‘13 figures).

Private non-residential spending overall - including projects like hotels, parking garages, hospitals, and commercial buildings, recorded modest gains from a month over month and year over year standpoint. Full year results of +2% is a good sign, but it pales in comparison to the gains realized on the residential side. Helping the cause is the energy sector, where a 5% gain was noted, as well as lodging and warehouse spending – up 33% and 11%, respectively.  Private health care (down 3%) and communication-industry spending (down 12%) bogged down the total results for the private, non-residential sector.

One of the areas that has continued to struggle, and isn’t showing any signs of breaking through any time soon, is in public spending. Most notably, highway and street construction is down year over year, and public education infrastructure spending is down as well. With declines in dollars spent of 3.7% and 3.8%, these two areas are at risk of a continual decline unless the US government formulates an appropriate spending plan.

In general, residential construction should continue to grow. Bolstered by interest rates that are still at near-historic lows and a pent up demand for housing, homebuilders should see continual gains in the residential building market. Public construction spending may be less promising, as volatility in budget appropriations may lead to fewer approved public works projects and less money to allocate toward repairs and maintenance jobs. For a nation that has just begun to pull out of the worst recession in recent times, seeing solid gains in overall construction spending is a positive indicator of things to come.

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