Nonresidential building up as housing hits brakes: AG

WASHINGTON — "A surge in nonresidential construction spending in April nearly offset a slowdown in single-family home building and improvements," said Ken Simonson, chief economist of the Associated General Contractors, in early June.

Simonson was commenting on the Census Bureau's report that construction spending in April was estimated at a seasonally adjusted annual rate of $1.196 trillion, down 0.1% from March. The April total was 8.5% higher than in April 2005.

"Looking at the first four months of 2006 combined, actual spending was 8.9% higher than in the January-April 2005 period," Simonson said. " Private nonresidential construction was up 10.8% year-to-date, public construction gained 9.7% and private residential spending was 7.8% stronger."

So far, the year-to-date totals show that the apparent decline in residential construction is limited to improvements, which dropped 10%, and not to a slowdown in new single-family or multifamily building, which rose 13% and 19%, respectively, Simonson said.

"Among the major private nonresidential construction categories, manufacturing and 'multi-retail' — shopping centers, shopping malls and general merchandise stores — stand out, with year-to-date increases of 22% and 37%, respectively," he said. "There was 25% growth for hospital construction, 18% for lodging and 14% for office construction."

On the public side, he said, educational and highway and street construction posted year-to-date increases of 11% and 12%, respectively.

"The strong economy should keep boosting nonresidential construction, even though materials cost increases are causing some projects to be redesigned, deferred or canceled," Simonson said. "For instance, the April producer price index report showed increases in the past 12 months of 53% for copper and brass mill shapes, 43% for asphalt, 31% for diesel fuel and 24% for gypsum products.

"Construction is especially vulnerable to petroleum price and supply problems. June 1 is not only the beginning of 'hurricane season' 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 onand off-road diesel, asphalt and the freight charges for thousands of items delivered to jobsites."