Agc Economist: Nonresidential Construction On Track Despite Escalating Materials Costs

A surge in nonresidential construction spending in April nearly offset a slowdown in single-family home building and improvements, Associated General

A surge in nonresidential construction spending in April nearly offset a slowdown in single-family home building and improvements, Associated General Contractors of America Chief Economist Ken Simonson noted last month in response to release of Census Bureau data. Looking at the first four months of 2006 combined, actual spending was 8.9 percent higher than in the January-April 2005 period. Private nonresidential construction was up 10.8 percent year-to-date, public construction gained 9.7 percent, and private residential spending was 7.8 percent stronger.

Census figures show construction spending in April was estimated at a seasonally adjusted annual rate of $1.196 trillion, down 0.1 percent from March. The April total was 8.5 percent higher than the same period in 2005. The year-to-date totals show the apparent decline in residential is limited to improvements, which dropped 10 percent. New single-family or multi-family building are up 13 percent and 19 percent, respectively, Simonson explains. Among major private nonresidential construction categories, manufacturing and Îmulti-retailÌ Û shopping centers, shopping malls, and general merchandise stores Û stand out, with year-to-date increases of 22 percent and 37 percent, respectively. Growth was also noted, he adds, in hospital (25 percent), lodging (18 percent) and office (14 percent) construction.

On the public side, the two largest categories Û educational and highway and street construction Û posted year-to-date increases of 11 percent and 12 percent, while most other public categories also rose. The strong economy should keep boosting nonresidential construction, even though materials cost increases are causing some projects to be redesigned, deferred, or canceled, Simonson affirms.

Census officials’ April Producer Price Index report indicates sharp increases in the past 12 months for copper and brass mill shapes (53 percent), asphalt (43 percent), diesel fuel (31 percent), and gypsum products (24 percent). Construction is especially vulnerable to petroleum price and supply problems, Simonson observes. June 1 is not only the beginning of Îhurricane season,Ì but is also the date on which refiners must start shipping ultra-low-sulfur diesel. Either a storm or a switchover problem could send prices even higher for on- and off-road diesel, asphalt, and the freight charges for thousands of items delivered to job sites.