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July Construction Spending Marks 10-Year Low

Sep 20, 2010 3:32 PM

Total construction spending declined to a 10-year low of $805 billion in July, as investments in construction projects dropped 1.0% from a downwardly revised June total, according to the Associated General Contractors of America (AGC). Association officials note that figures from the U.S. Census Bureau show depressed private-sector activity, and local and state budget cuts are offsetting stimulus-funded construction spending.

“While the stimulus is funding some vital infrastructure projects, the private sector is too cautious and state and local governments are too cash-strapped, to help,” says Ken Simonson, the association’s chief economist. “As a result, overall construction spending is at its lowest level in a decade and hundreds of thousands of construction workers are unemployed.”

Simonson notesthat the July total was one-third lower than the high-water mark set in February 2006 and was down by 11% in the past 12 months alone. He adds that in the past year, all 12 private non-residential construction categories and 10 of the 14 public categories declined. Private residential spending in July was 5.5% higher than a year before but has dropped for three straight months since the homebuyer tax credit expired in April, Simonson continues.

Stimulus funds appear to have buoyed public housing (up 18% from July 2009 to July 2010), sewage and waste disposal (up 11%), and water supply construction (up 0.7%), while reconstruction work around New Orleans helped conservation spending rise 12%, Simonson suggests. He adds, however, that stimulus spending on highways and other transportation facilities was evidently not enough to offset the downturn in state and local budgets, leading these categories to contract by 7% and 1% respectively, from year-earlier levels.

Private non-residential spending plunged 24% from July 2009 to July 2010 with double-digit declines in nearly all categories, Simonson remarks. The economist notes that private power construction reached the highest monthly level this year but manufacturing and developer-financed categories such as office, hotel, and retail construction appear to be heading for still less activity.

Stephen Sandherr, CEO of the construction association, says the spending data and metropolitan area construction employment figures showing construction employment declined in 276 out of 337 metro areas this past year, made it clear that the industry is hurting. He says long-delayed federal legislation to invest in aging public infrastructure would provide a needed boost to the construction industry while making the Unitd States more economically competitive. “Letting our roads age, our bridges deteriorate, and our ports decline is no way to boost our export capacity,” says Sandherr.

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