Tom Stundza -- PurchasingBuilders cut back on new projects in February and drove down construction spending to $846 billion, a low last recorded in November 2002. Building industry economists say this is a fresh sign that the troubled real-estate market remains a sore spot for the economic recovery. And it bears out comments by
steelmakers at recent industry meetings that demand for plate and structurals continue to be weak.
"Most of the economy seems to be improving but construction is falling into an even deeper hole," says Ken Simonson, chief economist of the Associated General Contractors of America. In a statement, he says that "bad weather may account for a small part of February's downturn, but most of the contraction reflects ongoing lack of demand, tight credit conditions and shrinking state and local budgets."
Simonson says that "it appears many projects are being halted or scaled back," and suggests that the February decrease "might prove to be even worse" once the Commerce Department has more complete data.
Simonson's analysis shows that new single-family construction spending was 3.9% above the February 2009 total but fell by 0.1% in February after eight consecutive monthly increases. Improvements to existing single- and multi-family construction were 4.3% higher than a year earlier, he adds, but down 4.3% percent from the previous month. "These numbers suggest that single-family construction will rebound in 2010, even as multi-family continues to sink," Simonson says.
A bad signal came from new multi-family construction spending, which was level in February with downwardly revised January spending but 52% below the year-ago number.
"Among private nonresidential categories, the only bright light is power construction-power plants, renewables such as wind and solar, and transmission lines-where spending rose 1.3% in February and 9% compared to a year before," Simonson says. "I expect this good news to continue, but I also anticipate further double-digit annual declines in other categories."
In February, spending on lodgings dropped 6.7% for the month and fell 53% year-over-year; commercial, including retail, warehouse and farm dropped 3.5% from January and fell 38% from last February; private offices slipped 2% for the month and 38% from year ago; manufacturing rose 3.4% in February but fell 35% in the year-to-year comparison; and health care spending shrank 1.6% from January and 15% from a year before.