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April 1, 2008 ― Construction Spending Slips Overall, Nonres Has Small Gain

April 1, 2008
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Construction spending slipped 0.3 percent in February to a seasonally adjusted annual rate of $1.12 billion.

Construction spending slipped 0.3% in February to a seasonally adjusted annual rate of $1.12 billion, the Census Bureau reported today. The drop was the fifth straight monthly decline. Year-to-date (YTD) spending in the first two months of 2008 was 2.6% lower than in January-February 2007.

Residential construction sagged 0.9% for the month and 20% YTD. Private nonresidential spending inched down 0.1% in February but was up 16% YTD. Public nonresidential spending rose 0.5% and 6.6%. Growth in some categories held steady in the first two months of 2008 or even accelerated from 2007, while others slowed markedly.

Educational construction rose 15% YTD, compared to 14% from 2006 to 2007; power, 30% vs. 27%; manufacturing, 30% vs. 10%; transportation facilities, 14% vs. 16%; lodging, 49% vs. 65%. In contrast, commercial (retail, warehouse and farm) rose 1.2% YTD vs. 13% in 2007; highway, 3.9% vs. 7.0%; office, 8.7% vs. 19%; health care, 4.2% vs. 14%. Among private residential categories, new single-family construction fell 33% YTD vs. 27%; new multi-family, -20% vs. -7.5%; and improvements, +10% vs. +0.4%.

The outlook for highway construction appears to be worsening. Of 176 respondents to a March 24 survey by AGC of highway contractors, chapter executives and some state departments of transportation, 77% said there has been “a reduction in the number of contracts that are being bid by your state DOT over the past year.” Half said their “state had problems in providing the match to receive Federal funds” and nearly half said “the reduction in the number of contracts being bid resulted in you laying off workers.”

“Tax revenues collected by states during the fourth quarter of 2007 grew only 2.3% compared to the same period in 2006, while costs for state and local government services continued a recent trend of sharp increases,” rising at an annual rate of 6.2%, compared to 4.1% the previous quarter, the Rockefeller Institute of Government (www.rockinst.org) reported on Monday. “When the effects of inflation and enacted tax changes are factored in, state tax revenues across the nation decreased by 4.3% during the quarter. Both by that measure and in nominal terms, state tax revenues were the weakest in almost five years….Among individual states, revenues dropped significantly in Oregon, Florida, West Virginia, Mississippi, Arizona and Nevada. Revenue growth was strongest in Alaska, Colorado, Iowa, Montana, North Dakota, South Dakota and Texas.”

Revenue declines can trigger cuts in state-financed construction. Today’s Census Bureau report showed that state and local construction spending rose 8.6% YTD, compared to a 12% gain from 2006 to 2007.

In February, seasonally adjusted employment increased in 23 states and the District of Columbia and decreased in 27 states, the Bureau of Labor Statistics reported on Friday. Over 12 months, nonfarm employment increased in 43 states and DC and decreased in seven states. The largest over-the-year percentage increases in employment occurred in Wyoming, 3.1%; Texas and Utah, 2.3% each; Washington, 2.1%; and Colorado, 2.0%. Rhode Island recorded the largest over-the-year percentage decrease in employment, -1.6%; followed by Michigan, -1.5%; Florida and Wisconsin, -0.3% each, and Nevada, -0.2%.

Nationally, total nonfarm employment increased 0.6% and construction employment fell 2.9% over the year. By state, construction employment rose in 12 states in February, fell in 29 and was unchanged (or within 100 of January levels) in nine states plus DC. Over the year, construction employment climbed in 20 states plus DC, fell in 27 and was within 100 of the February 2007 level in Arkansas, Delaware and Mississippi. Although these totals were similar to the January comparisons, construction growth was generally weaker and decreases larger than before.

The highest year-over-year percentage growth was in Kentucky, 7%; Hawaii, Kansas, Nebraska, Oklahoma and Wyoming, 5% each. The biggest declines were in Florida, -12%; Arizona, -11%; Rhode Island, -10%; California, -9%; and Nevada, -8%.

Some large power construction projects are going ahead. “Dominion Virginia Power's plan to build a [$1.8 billion coal-burning plant in Wise County] in southwest Virginia cleared a major hurdle Monday when it was approved by the State Corporation Commission, the Washington Post reported today. “Municipal utilities have more than 33,000 megawatts [MW] of generating capacity under construction: 49% gas fired, 40% coal fired and 6% wind turbines, according to data by the American Public Power Association,” the Wall Street Journal reported on March 20. “Last year, [investor-owned utilities] announced plans to build nearly 25,000 MWs of new generating capacity, with less than 10% of it coal-fueled. For the first time in decades, nuclear proposals led the list at…45% of the total,” according to the Edison Electric Institute.

Arizona Public Service Co. on February 21 announced plans for a $1-billion, 280-MW concentrating solar power plant to be built 70 miles southwest of Phoenix, near Gila Bend, Ariz. On March 6, the Associated Press reported, “New power line construction is more likely in the mid-Atlantic states and the Southwest after the government…said it was pushing ahead with a plan to expand and modernize the electric grid in those areas.”

BMW announced on March 10 that it will invest $750 million in its Spartanburg, S.C., auto factory to add 1.5 million square feet and 500 new jobs on site to produce three models and to increase production capacity to 240,000 units by 2012.

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