Enactment of Highway and Energy Bills Should Boost Construction

August 4, 2005 • According to Ken Simonson, chief economist of The Associated General Contractors of America (AGC), the latest Census Bureau figures for construction spending in June showed a mixed pattern. “Private nonresidential construction eked out a gain of 0.2 percent from May. Public construction slipped 0.5 percent from the record it set the month before, and private residential construction fell for the fourth straight month,” Simonson says.

 

Today's figures showed total spending of $1.093 trillion at a seasonally adjusted annual rate, down 0.3 percent from May. For the first half of 2005, total spending was 9% higher than in the first half of 2004, with private nonresidential spending up 12%, private nonresidential up 6%, and public spending up 7%. Bright spots include manufacturing (+28%), multi•retail (+22%), multi-family housing (+19%), and communication (+15%).

 

“Although recent numbers have been a bit sluggish, there are plenty of indicators that activity will gain momentum in the second half of 2005 and beyond,” Simonson said. “Friday's report on gross domestic product showed that consumers, businesses, and governments all are spending on investment. The enactment of the highway and energy bills should give a long-term boost to several types of construction. Today's report from the Institute for Supply Management (ISM) confirms individual company reports that manufacturers are in good shape to add factories. Many states have reported large increases in revenues that will allow public construction spending to expand over the next year or two.”

 

Simonson added that private residential construction is likely to shrink gradually over the next year. Long-term interest rates are still remarkably low and builders remain optimistic, with large backlogs of unused permits.”

 

“The biggest worry is still materials costs, plus widespread tight supplies of cement,” he says. “The manufacturers' purchasing managers who responded to today's ISM survey noted price increases for diesel fuel and freight, copper and some types of steel, all of which are important to contractors as well as manufacturers. Cement and gypsum also have risen sharply in price in recent months.”