Buoyant Housing Market Keeps Construction Afloat
"A remarkably buoyant residential market kept construction afloat again in March," said Kenneth D. Simonson, chief economist for the Associated General Contractors of America (AGC), the nation's leading construction trade association. "The seasonally adjusted value of construction put in place, as reported today by the Census Bureau, was 1% below the upward-revised February and January figures. The 3-month unadjusted total, as well as the seasonally adjusted March number, climbed roughly 1.5% compared to last year."
Construction in March totaled $868.5 billion seasonally adjusted at annual rates. The gain reflected a rise in private residential construction of 0.1% from February and 11% for the first quarter relative to January-March 2002. The monthly and year-to-date residential gains were shared by single-unit (+0.4%, +14%) and multi-unit housing (+0.3%, +5%).
"Mortgage rates are within a whisker of this winter's lows, according to today's figures from Freddie Mac," Simonson said. "I don't foresee much of an uptick soon. As a result, home buying and home improvements should both continue at a strong pace."
The private nonresidential building sector edged down 0.1% after rising the previous two months. "Although private nonresidential building is down nearly 10% from March 2002, this is better than the year-over-year decreases seen most of last year. In fact, this sector has been virtually stable for more than six months," Simonson pointed out. "Detailed Census figures show that health care construction is growing faster than ever (+1.4% over February, +18% year-to-date). Meanwhile, categories that had declined steeply have slowed or even turned up, except for electric power plants (-5.5%, -22%).
"However, today's report from the Institute for Supply Management, along with other business-sector reports, suggest that manufacturing, business travel, and retail are still weak. I think a sustained pickup in nonresidential construction is still months away, even though the sector may have stopped imploding," Simonson commented.
"The big negative in today's report is public construction," he said. "That total fell 3.5% in March, after dropping more than 2% in February. For the first three months of 2003, public construction is only 0.4% behind the first quarter of 2002. But I expect the comparisons to keep worsening as state and local budget stresses grow.
"The leading public category, education, is up by 5% in the first quarter, and elementary- and secondary-school construction should hold up well. Many school districts rely on residential real property taxes, which have moved up in line with home values. Record school-bond issues will also keep school construction and reconstruction humming. But spending on higher education and most other public construction is likely to suffer. In the first three months of 2003, the $600 million increase in education construction was more than offset by declines of $500 million each in other public buildings and highway and street construction compared to 2002."