Private Nonresidential Construction Reaches All-Time High in June

Private nonresidential construction reached another record high in June, according to the Aug. 1 construction spending report by the U.S. Department of Commerce. Spending hit $408.1 billion, a 0.8% increase from May, on a monthly, seasonally adjusted basis.

Total Nonresidential Construction Spending, June 2005-June 2008

Chart courtesy of the Associated Builders and Contractors

Of the 16 subsectors of total nonresidential construction, 13 of those produced year-over-year gains with manufacturing (up 39.8%), lodging (up 32.8%), and power (up 30.1%). Meanwhile, conservation (up 12.5%), power (up 3.7%), and water supply (up 3.6%) all experienced the largest gains in nonresidential construction from the period of May to June. In contrast, three subsectors experienced declines, with religious facilities (down 9.6%), communication (down 3.7%) and commercial construction (down 0.4%) since June 2007. Seven nonresidential subsectors posted declines in spending from May to June with public safety (down 1.6%), communication (down 1.6%), and highway and street (down 14%).

While private nonresidential construction spending continued to expand, public nonresidential and private residential construction spending both declined by 0.2% and 1.7%, respectively. Total construction spending, both nonresidential, and residential, was $1.082 trillion, down 0.4% from May, and down 5.9% since June of last year.

Meanwhile, the U.S. Labor Department reported Aug. 1 that the nonresidential construction sector gained 4,100 jobs in July. However, the nation’s unemployment rate hit a four-year high as employers cut 51,000 jobs.

Nonresidential construction activity continues to expand despite mounting expectations to the contrary. According to Associated Builders and Contractors chief economist Anirban Basu, growth in certain key construction segments continues to be impressive. With the global demand for energy and food still apparent, construction related to these segments is not expected to experience a slowdown in activity any time soon.

However, ABC economists continue to believe that the string of monthly records will soon be interrupted by an upcoming monthly decline. While that has yet to occur in 2008, it is anticipated that any downturn in activity may be quite brief. Recently, there has been a series of positive developments that hint at a quick reversal of any downturn in activity to come.

The U.S. Treasury Department, the Federal Reserve and others remain very aggressive in dealing with the ongoing credit crunch. It should also be noted that banks cannot make money unless they are lending, and therefore the banking sector cannot remain in its lending hibernation for an extended period of time.