Residential Plunge, Commercial Weakness Drive Construction Spending Down

While commercial construction spending showed gains and losses, overall construction spending in April totaled $1.12 trillion, 3.9 percent lower than April of 2007 and 0.4 percent down from March, according to the U.S. Census Bureau. Not surprisingly, new private single-family construction led the decline, falling 4.4 percent compared to March and a whopping 38 percent compared to April of last year. In the various commercial categories, however, spending trends were mixed. Hotels rose 7.6 percent between March and April and 45 percent compared to April of 2007. “It’s amazing to me that people keep pumping money into hotels,” Kenneth Simonson, chief economist with Associated General Contractors of America (AGC). “While there are some mega-projects that might skew the comparison a little, the numbers are just too large to be explained completely by a few large projects. It has to indicate continuing activity.” Office spending rose in April as well, up 0.5 percent since March and 15 percent from April of 2007. Four large projects might explain a portion of the increase. According to McGraw-Hill Construction, a division of McGraw Hill Cos., April saw the launch of four big office projects: two in Washington, D.C., valued at $210 million and $101 million; one in Atlanta expected to cost $175 million; and another in New York City worth $100 million. Defined as retail, warehouse and farm construction, the Census Bureau’s commercial category spending rose 1.9 percent for the month and 0.3 percent compared to April 2007. Simonson doubts that the category is really in positive territory. “Because of the higher cost of diesel fuel and steel, the category has probably declined in terms of fixed dollars and square footage,” he said. “Commercial spending doesn’t seem to me to be bouncing back.”Neither is multi-family. New multi-family spending rose only 0.4 percent in April and slumped 13 percent compared to April of 2007. “That market has shifted,” Simonson said. “Two years ago there was a lot of purpose-built rental housing. But that market is being dragged down by condos that haven’t sold and are being repositioned as rentals and even single family homes that failed to sell, or got foreclosed and the banks want someone to occupy them.”