The Public Sector Continues Its Drag on the Construction Market

The good news: Construction spending in July maintained consistent year-over-year growth despite a pullback from the June peak. The bad news: The public sector continues to hold back broader growth in the overall market. This is all according to an analysis of new federal data released by the Associated General Contractors of America.

“The July spending numbers send a very mixed message,” said Ken Simonson, the association’s chief economist. “Construction of new homes, apartments and most private nonresidential structures appears to be driving gains in construction activity even as the public sector continues to drag on broader sector growth.”

Association officials said they expect the disparity between private and public construction to persist unless Washington acts to fix infrastructure funding challenges and pass long-delayed measures. Simonson noted that total construction spending declined 0.9 percent for the month but climbed 9.3 percent from July 2011 to July 2012 as well as for the first seven months of 2012 combined, compared with the same period in 2011.

Private residential spending dropped 1.6 percent for the month but was 19 percent higher than in July 2011. Private nonresidential construction slumped 0.9 percent for the month but grew 12 percent year-over-year. Public construction slid further, edging down 0.4 percent in July and 0.7 percent year-over-year.

Power and energy construction — the largest private nonresidential type — fell for the fifth month in a row in July, by 1.4 percent compared with June, but the total still rose 21 percent from a year ago, thanks in part to oil and gas activity. Simonson said he expected demand for power and energy construction to stabilize and probably expand. He added that he was optimistic that manufacturing construction, which shrank 2.1 percent for the month but was 17 percent higher than in July 2011, will resume growing in the coming months.

Public construction, which is dominated by highway and educational construction, remains plagued by budget woes, especially for local governments and school districts, Simonson remarked. He noted that highway and street construction spending inched down 0.3 percent in July but was up 5.2 percent over 12 months, while educational construction spending decreased 0.6 percent and 5.0 percent respectively. Other public segments dipped 0.2 percent for the month and 0.8 percent year-over-year.

Association officials said public construction growth will remain a drag on the industry unless lawmakers enact long-delayed measures for essential water, wastewater and other infrastructure projects. They added that Washington officials also need to address chronic funding imbalances for a host of infrastructure programs.

“The success of the newly built flood-control structures in protecting New Orleans from Hurricane Isaac is a good reminder of the wisdom and value of infrastructure investments,” said Stephen E. Sandherr, the association’s CEO. “It costs far less to protect a city than it does to rebuild it.”