Construction spending inched up in March 2012 to an annualized rate of $808 billion, up 0.1% compared to the previous month and is now 6% above year ago levels, according to a new analysis of federal data released recently by the Associated General Contractors of America. The overall gains mask divergent trends; however, as public sector construction activity continues to decline while private sector demand for new construction continues to strengthen.

“Private and public sector demand for construction appear to be heading along two distinct directions,” said Ken Simonson, the association’s chief economist. “While it is great to see private sector activity coming back to life, it is unfortunate to see declining public sector demand dampen the industry's overall growth.”

Simonson noted that private construction activity expanded by 11.5% between March 2011 and March 2012 and by 0.7% compared to February 2012. Nonresidential spending was particularly robust, expanding by 15.2% from March 2011 and by 0.7% compared to February 2012. He noted that the biggest private nonresidential monthly spending increases were for transportation (up 6.7% for the month) and office projects (up 5.4% for the month), while manufacturing (up 38.6% for the year) and power construction (up 22.1% for the year) experienced the largest annual increases.

The economist added that private residential spending increased by 0.7% compared to February 2012 and 7.4% compared to March 2011. New single-family construction posted a 10.3% year-over-year rise and a 3.8% increase for the month. New multi-family construction was up 23.3% from the previous March but down 3.1% from February. Spending on residential improvements moved up 2.6% year-over-year and fell 1.9% for the month.

Simonson noted that public construction spending declined 3.2% in March from a year earlier and 1.1% from March. The two largest public categories showed similar results. Highway and street construction, the largest public category, was down 0.5% year-over-year and fell 0.8% for the month. Educational spending declined by 2.7% over 12 months after dropping 1.2% from February to March.

Association officials warned that the ongoing declines in public construction spending were making it difficult to benefit from the growing private-sector construction activity. While Congress appears to finally be making progress on a long-overdue highway and transit bill, the lack of key bills, the winding down of the stimulus, and the conclusion of many military base realignment projects were offsetting growth in private sector activity.

“While it is good to see Washington inching closer to passing some key infrastructure measures, at the rate they are progressing, they will be in place in time for the next private sector downturn,” said the association’s CEO Stephen E. Sandherr. “Instead of holding back a construction recovery, elected officials could support and encourage even more growth by enacting a host of long-term infrastructure bills.”