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Nonresidential, Manufacturing Construction Fell in March

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The Census Bureau reported that construction spending declined 1.7 percent in March, driven lower by reductions in the nonresidential and public sectors.  Total construction spending fell from $871.2 billion at the seasonally adjusted annual rate in February to $856.7 billion in March. The strongest component was the residential sector, up 0.7 percent for the month and 17.8 percent year-over-year. Indeed, the recovering housing market is helping to improve the overall construction numbers, much as it is doing with the larger macroeconomy.

Outside of housing, though, the numbers suggested a lot of weakness. For manufacturers, the level of spending has declined each month so far in 2013, down from $52.2 billion in December to $48.6 billion in March, or 1.1 percent. To be fair, the longer-term trend continues to be positive, as the attached graphic shows, with construction spending in the sector up from a low of $29.5 billion in January 2011.

Looking at other components of private, nonresidential investment, the data are mixed for March, even as they are down 1.5 percent in total. The lower figure stems from declines in spending among educational (down 3.5 percent), commercial (down 3.1 percent), health care (down 3.1 percent), and power (down 2.3 percent) companies. At the same time, there were some pockets of strength in the communications (up 3.7 percent), lodging (up 2.4 percent), religious (up 2.2 percent), and transportation (up 1.1 percent) sectors. The largest year-over-year gains in private, nonresidential construction spending were in the lodging (up 17.8 percent) and office (up 17.4 percent) sectors, with the greatest decline for amusement and recreation businesses (down 13.6 percent).

Meanwhile, public construction spending declined 4.1 percent in March, with government budgets clearly being impacted by sequestration and greater attention to the U.S. fiscal situation. Total public spending in March was $258.3 billion, or 5.4 percent lower than one year before and 20.6 percent below where it was four years ago. Public spending in March was down across-the-board in all categories except for commercial and health care investments. The largest year-over-year declines were in the office (down 29.0 percent), sewage and waste disposal (down 18.0 percent), commercial (down 14.9 percent), and public safety (down 14.7 percent) sectors. At the same time, the greatest annual increases were in the power (up 28.6 percent) and transportation (up 21.6 percent).

Chad Moutray is chief economist, National Association of Manufacturers.


Nonresidential Construction Continues to Struggle

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The Census Bureau said that construction spending decreased 2.1 percent in January, the first decline in 10 months. Private, nonresidential construction activity fell 5.1 percent for the month, which was the main reason for the lower total figure. Residential spending was unchanged, and public construction activity declined 1.0 percent. Still, looking at a longer time frame, construction was up 7.1 percent year-over-year, with private housing construction increasing a whopping 22.0 percent and nonresidential activity rose 4.0 percent.

For manufacturers, the value of construction projects in January was 2.9 percent lower than in December, falling from $52.2 billion to $50.6 billion for the month. Still, December’s construction activity appears to be a bit of an outlier. If you were to exclude December from the analysis, there would be a clear upward trend in the manufacturing sector data from July’s value of $46.6 billion. The largest gains during that time frame appear to be in the food, beverage, and tobacco; chemical; and nonmetallic mineral sectors.

Looking private, nonresidential construction as a whole, the figures were mostly mixed. On a year-over-year basis, the strongest increases in construction activity occurred in the office (up 26.2 percent), lodging (up 13.3 percent), manufacturing (up 13.1 percent), educational (up 5.8 percent), and transportation (up 4.4 percent) sectors. For the month of January, the largest gains were in the health care (up 2.9 percent), religious (up 1.7 percent), and communications (up 1.2 percent) sectors; whereas, the biggest declines were in the power (down 14.5 percent), lodging (down 6.1 percent), and amusement and recreation (down 4.5 percent) sectors.

Public sector nonresidential spending was mostly lower, with year-over-year activity down 2.7 percent. Nonetheless, there were some monthly increases in construction spending in January. These included higher spending in the power (up 9.0 percent), commercial (up 3.0 percent), and amusement and recreation (up 1.4 percent) segments.

Chad Moutray is chief economist, National Association of Manufacturers.


Manufacturing Construction Spending Was Lower in November

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The Census Bureau said that construction spending decreased 0.3 percent in November, its first decline since March. The decrease was largely due to lower levels of activity in the nonresidential sector, which decreased 0.7 percent and was negative four of the past six months. With businesses anxious about the impending fiscal cliff and tighter government budgets dampening public sector spending, nonresidential activity has been soft at best for much of the second half of 2012.

This has definitely been true in the manufacturing sector, which had seen its construction spending levels fall 2.0 percent since September. With at least some of the uncertainties surrounding the fiscal cliff over, I would expect for these figures to improve moving into 2013 if sales improve and the global economic environment stabilizes.  As a sign that manufacturers have been willing to invest for the future, increased construction spending earlier in the year helped to push up year-over-year activity by 5.1 percent.

Looking specifically at the November numbers, the one bright spot was the residential sector, with construction spending up 0.4 percent for the month and private sector housing activity up 19.0 percent since November 2011. On the private sector nonresidential side, construction was down across-the-board, with only transportation and communications sector activity higher.

Public sector nonresidential spending was off 0.5 percent, but it was more mixed. Sectors with increased public sector activity included commercial, power, sewage and waste disposal, highway and street, and transportation projects. The largest monthly declines were in conservation and development, amusement and recreation, office, water supply, and public safety projects.

Chad Moutray is the chief economist, National Association of Manufacturers.

Manufacturing Construction Continues to Grow

By | Economy | One Comment

The Census Bureau announced that construction spending rose 0.4 percent in June. This was slower than the 0.9 percent and 1.6 percent growth rates observed in April and May, respectively. Public sector spending was flat, with residential construction lifting the overall numbers higher.

Private residential construction rose 1.3 percent for the month, with new housing activity up 12.1 percent year-over-year. Indeed, the still-depressed housing sector has been growing slowly-but-steadily recently, providing a boost to an economy that still has its challenges.

Manufacturing is another area that has been a bright spot, even with recent slowdowns in activity. In June, manufacturers spent $52.1 billion on new construction projects at that annual rate, an increase of 3.8 percent over May’s $50.2 billion level. Since June 2011, spending has risen 19.0 percent.

Private nonresidential construction was up just 0.1 percent overall. Other nonresidential construction expenditures that were higher in June include communication (up 4.6 percent), lodging (up 2.9 percent), educational (up 1.0 percent), and amusements and recreation (up 1.0 percent). These were offset by declines in power (down 3.1 percent) and commercial (down 1.5) construction spending.

Overall, these numbers provide a slight counterbalance to weaker manufacturing data elsewhere. Earlier today the Institute for Supply Management said that the sector was contracting for the second month in a row. And yet, this information suggests that manufacturers continue to invest in their businesses, hoping to take advantage of new opportunities. That, too, is consistent with various regional sentiment surveys, which find guarded optimism over the course of the next six to twelve months and generally predict higher levels of capital spending moving forward.

Chad Moutray is chief economist, National Association of Manufacturers.

ADP Reports 10,000 Additional Manufacturing Workers in January

By | Economy, Studies and Reports | No Comments

According to Automated Data Processing (ADP), manufacturers added 21,000 net new employees in February, up from an increase of 16,000 in each of the past two months. This suggests that the stronger growth in industry employment has continued into February. Goods-producing firms – which include manufacturing, construction, and mining – added 46,000 net new jobs. This is the fifth consecutive month of gains in the goods-producing sectors, with 146,000 more employees added in that time frame.

For the economy as a whole, there were 216,000 new nonfarm, private payrolls, up from 173,000 last month. Small and medium-sized employers (e.g., those with less than 500 employees) accounted for all but 20,000 of those jobs.

Of course, the ADP figures are a precursor for the release of the official jobs report from the Bureau of Labor Statistics (BLS) on Friday. BLS reported 243,000 new nonfarm payrolls jobs and 50,000 manufacturing workers in January. Expectations are slightly lower payroll numbers for February, with the current consensus estimate of 150,000 new nonfarm payroll jobs. 

Chad Moutray is chief economist, National Association of Manufacturers.

Construction Spending Up 0.2 Percent in September

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The Census Bureau announced that construction spending rose 0.2 percent in September, a slowdown from the 1.6 percent increase in August. All of this increase came from the private sector, with residential construction (up 0.9 percent) outpacing nonresidential construction (up 0.3 percent). Overall private construction grew 0.6 percent, but public spending on construction dropped by 0.6 percent.

Breaking these numbers down further, single-family and multi-family home construction rose 0.5 percent and 0.2 percent, respectively, for the month. Over the past year, however, multi-family housing has accounted for all of the net growth in the residential sector, with the level of construction for multi-family homes up 6.5 percent. Single-family housing was down 0.1 percent over the same time frame.

For non-residential private construction spending, the largest monthly increases have come in the health care, transportation, lodging and the educational sector. Manufacturing construction spending fell 0.4 percent in September, but year-over-year, manufacturers have increased construction by 4.1 percent.

Public construction spending has been down significantly over the course of the past year, falling 9.2 percent since September 2010. Infrastructure, educational and residential projects experienced the largest declines over the past year. However, for the month of September, there were some notable increases in the infrastructure areas such as highways and streets, sewage and waste disposal and power.

Overall, the news that private construction is growing is a positive, but it would be nice to see this growth more broad-based. Weakness in manufacturing construction, for instance, is a result of recent weaknesses in the sector and anxieties about the global economy. A rebound in the global economy would erase this doubt and increase construction investment within the sector.

At the same time, growth in public-sector construction will remain weak in light of fiscal challenges at the local, state and federal levels.

Recovery Slows: Only 2.4 Percent GDP Growth in Quarter

By | Economy, Taxation, Trade | 3 Comments

Today’s advanced report of second quarter GDP came in close to expectations, with growth decelerating to a 2.4 percent annualized rate in the second quarter, which is a slowdown from 3.7 percent growth in the first quarter and 5 percent growth in the fourth quarter of last year. While today’s report is the first estimate of overall economic growth in the second quarter and will be revised as additional data arrive, it appears that the recovery is slowing — concerning news to manufacturers. 

One sector important to manufacturing is residential investment and housing. Temporarily spurred by the end of the homebuyer tax credit, this sector rose at an annual rate of 28 percent, accounting for a quarter of overall economic growth in the second quarter. Since this temporary measure likely brought forward activity that would have taken place later in the year, housing activity will likely be a drag on growth in the third quarter. Manufacturers produce the majority of the products used in home construction; as the housing the housing market slows down from the temporary growth in the second quarter manufacturers will likely see demand for housing related products slow as well. 

Manufacturers could find some good news in today’s report. First was that exports, most of which are manufactured products, rose by 10.3 percent in the second quarter. This represents the fourth consecutive quarter of double-digit export growth, a feat that has not been accomplished in more than two decades! Exports are leading the way in this recovery and are one of the main reasons why manufacturing has been outpacing the overall economy over the past year.

The other good news in today’s report was that business investment rose a solid 17 percent in the second quarter, mainly driven by increases in equipment and software which rose at an annual rate of 22 percent. The increase is an important sign that while a slowdown may continue during the next several quarters, businesses are making some capital purchases, many of which are produced by U.S. manufacturers. It is important to note that some of these purchases of business equipment were likely due to pent-up demand that was put on the backburner during the recession. With that demand now met, I would expect a slowdown in business investment to take place in coming quarters.