The latest figures from the US Census Bureau suggest that overall levels of construction activity in the United States remain on the rise, but those same figures also show a two-speed industry as the recovery in the residential sector gains momentum while that in non-residential construction stalls.
At $US830.013 million, the seasonally adjusted dollar value of construction spending throughout the month of May was up 0.9 per cent for the month and was seven per cent higher than the previous corresponding figure in May last year.
Driving the recovery is increasing momentum in residential building, which recorded a 2.9 per cent jump in monthly activity – the fourth monthly increase in the past five months – and was 6.2 per cent up on the same month last year.
Furthermore, with the number of new privately owned dwelling authorisations throughout the country up by 30 per cent in the first five months of the year, the pace at which new residential work is coming in remains strong, indicating that activity in this sector is likely to expand further in coming months.
A different story emerges, however, in non-residential construction which, despite being up 7.4 per cent year on year, has flattened out since the start of the year and recorded zero growth in May.
Commenting on the subdued nature of this sector, Associated Builders and Contractors (ABC) chief economist Anirban Basu notes that gains in private sector spending are being offset by a paring back of public spending at the state level as governments try to bring debt under control, albeit with a surprising jump in federal spending during the month of May on conservation and development activities.
While Basu says this trend is likely to persist going forward, he cautions that non-residential activity is being propped up by strong private sector spending, and that already subdued levels of activity in this sector could wane further should private sector activity drop off.
Furthermore, Basu cautions industry stakeholders that current levels of construction activity reflect decisions made months ago when the economy was on ‘surer footing’, and did not have to contend with as much uncertainty stemming from the European debt crisis, America’s fiscal challenges and the global economic slowdown – a clear warning about a potential further softening in this sector.
The soft data for non-residential spending comes amid increasingly pessimistic signs for the sector going forward. In May, the Architectural Billings Index, widely seen as a reliable indicator of non-residential construction activity 12 months in advance, slumped to 45.8 – its lowest point over the past 12 months and well below the 50.0 mark which separates increasing architectural billings from decreasing billings.