AGC Chief Economist Comments on Construction Spending Report
May 7, 2008 – Commenting on the March construction spending figures released by the Census Bureau last week, Ken Simonson, chief economist for the Associated General Contractors of America (AGC) said the housing slump buried news of increased nonresidential spending by dragging total spending down by 1.1 percent for the month and 3.4 percent for the year.
"Nonresidential construction spending rose an impressive 1.3 percent in March and 12 percent compared to March 2007," Simonson said. Yet, Simonson added, nearly every category of nonresidential spending continued to exceed year-ago levels.
"In addition, estimates for nonresidential spending in January and February were each revised up, suggesting that gross domestic product (GDP) may have grown a little more in the first quarter than the Bureau of Economic Analysis (BEA) said yesterday," Simonson said. BEA reported that real (net of inflation) GDP grew 0.6 percent, the same as in the fourth quarter of 2007.
Both private and public nonresidential construction are still growing, although public spending is losing speed, according to Simonson. Private nonresidential spending was up 15 percent from March 2007, whereas public spending grew 7.2 percent, he said.
Simonson predicted a further slowdown in public spending as revenues flatten out or even shrink for highways, schools and other public projects. "On the private side, I expect ongoing vigor in spending on power, energy, communications, hospital, higher education and military base realignment-related projects to offset a likely retreat by office and retail construction.”
Simonson said the biggest challenge for all nonresidential construction is runaway materials costs. "Yesterday, a steel supplier told customers the price of rebar was rising another $100 overnight, compounding increases of 40 to 70 percent earlier this year,” he said. “The retail price of diesel fuel is now almost 50 percent higher than a year ago. Copper is close to its all-time high set in May 2006, and near-record prices for oil and natural gas may push up asphalt and plastics prices.”
Simonson concluded that it is essential that public budget-setting and contracting agencies recognize that construction costs have been rising at more than double the rate of consumer prices and seem sure to keep doing so. "With regard to highway construction, Congress must act immediately to prevent a huge drop in spending that will begin five months from today unless the Highway Trust Fund is replenished by the start of fiscal 2009," he said.
The Arlington, Va.-based Associated General Contractors of America is the largest and oldest national construction trade association in the United States. AGC represents 33,000 firms, including 7,500 of America's leading general contractors and 12,500 specialty contracting firms. More than 13,000 service providers and suppliers are associated with AGC through a nationwide network of chapters.
