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Nonresidential Building Construction Spending Inches Upward

Oct 28, 2011 2:13 PM

Nonresidential building construction spending rose a modest 0.8% in August following a 1.2% decline in July, according to Bernard M. Markstein, Reed Construction Data's U.S. chief economist. The increase left nonresidential construction spending at its second highest level since September 2010.

However, on a year-to-date basis, the measure is down 1.0% compared to the same period a year ago, writes Markstein. For lease private projects fell 1.8% following a 0.1% decline in July. The two months of decreased expenditures follows four months of increase. Meanwhile, spending for institutional projects jumped 2.2% in August following a 0.7% decline in July and leaving the level of spending at its highest level since September of last year.

Concern over the economic outlook is acting as a drag on nonresidential construction spending, according to Markstein. Nonetheless, spending totals will hold their own in the fourth quarter of this year and strengthen throughout 2012 and 2013. Construction activity in the near term will be limited to some extent by commercial developers who will slow construction on some projects already started and delay some projects scheduled to start because of dimmer prospects for profit when buildings are completed. Offsetting this will be lower long-term interest rates due to the Federal Reserve’s Operation Twist for those who can obtain funding.

For 2011, nonresidential spending is projected to decline 4.5%. Improvement occurs in 2012 with 5.0% growth forecast and accelerating into 2013 with 8.5% growth.

Read Markstein's full report here.

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