September 4, 2007

Washington, D.C.—“Nonresidential construction shrugged off the turmoil in homebuilding and credit markets in July to post another solid gain,” Ken Simonson, Chief Economist for The Associated General Contractors of America (AGC), said today. Simonson was commenting on the September 4 construction spending report from the Census Bureau.

“Although total construction spending slipped 0.4 percent in July, seasonally adjusted, and residential fell 1.4 percent, nonresidential spending climbed 0.6 percent, the 10th consecutive monthly gain,” Simonson observed. “For the first seven months of 2007 combined, total construction was down 3.4 percent and residential plummeted 18 percent compared to the same period in 2006. Those figures obscure the 15 percent jump in nonresidential spending.

“Private nonresidential construction—the type that might seem most vulnerable to a credit pullback—showed no sign of contagion, rising 0.4 percent in July and 17 percent year-to-date,” Simonson noted. “The three most speculative components—commercial, office and lodging—all advanced. Commercial construction was up 0.6 percent for the month and 15 percent year-to-date. The two biggest commercial subcomponents—multi-retail (‘big box’ and other general merchandise stores, shopping centers and malls) and warehouses—both leaped 4 percent in July and 28 percent year-to-date. Private office construction climbed 0.6 percent and 22 percent, and lodging shot up 0.8 percent and 60 percent.

“Other strong gainers included power, up 0.5 percent and 19 percent, and private health care (principally hospitals), up 1.3 percent and 13 percent,” Simonson remarked. “I anticipate these categories will remain vigorous, but I expect credit-sensitive types such as office, warehouse, retail and lodging to slow soon.

“Public construction was up 0.7 percent in July and 11 percent year-to-date,” Simonson commented. “The biggest component, education, rose 1.9 percent and 12 percent. But highway and street construction, which received a big boost in late 2005 and early 2006, was down 0.8 percent for the month and was only 5 percent higher year-to-date. Partly, that reflects lower prices for diesel and asphalt, but it also shows states are running short of highway funds as gas tax receipts slow.

“Highway spending could drop sharply late next year,” Simonson warned. “Last week, the Congressional Budget Office projected a $5 billion deficit in the federal Highway Trust Fund’s Highway Account in fiscal year 2009, which begins in just 13 months. Congress will need to bridge that gap in order to keep road spending from plunging.”

Media advisory: Simonson will speak about highway construction costs at an AGC-sponsored conference on Tuesday, September 11, at the St. Louis Airport Hilton. Contact Kelley Keeler for details.

The Associated General Contractors of America (AGC) is the largest and oldest national construction trade association in the United States. AGC represents nearly 33,000 firms, including 7,000 of America’s leading general contractors and 11,000 specialty-contracting firms. More than 13,000 service providers and suppliers are associated with AGC through a nationwide network of chapters. Visit the AGC Web site at AGC members are "Building Your Quality of Life.”

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