With the latest data showing non-residential spending dropping back and jobs being lost, questions are being asked about the strength of the recovery in the United States construction industry.
According to data from the US Census Bureau, the overall dollar value of spending on non-residential construction (seasonally adjusted) dropped by 0.7 per cent in May, coming in at $558.83 million. Private non-residential spending fell 0.2 per cent while public non-residential spending dropped 1.2 per cent.
Transportation (up 2.1 per cent) and water supply (up two per cent) remained reasonably strong, but ten out of sixteen non-residential subsectors recorded declines, with lodging (down 5.3 per cent), manufacturing (down 5.1 per cent) and conversion and development (down 4.9 per cent) the worst-hit areas.
Furthermore, a report by the US Labour Department shows that the nation’s construction industry shed 28,000 jobs in April. Indeed, heavy and civil engineering alone shed a whopping 11,200 jobs, wiping out all of the employment gains made in this subsector over the past year.
The outlook is not so bleak compared with one year ago, with non-construction activity up 7.1 per cent and the industry’s unemployment rate down almost two percentage points. Still, the data does highlight concerns that the recovery may be stalling.
Certainly, Associated Builders and Contractors (ABC) chief economist Anirban Basu is not encouraged by the latest figures. With the US economy having decelerated for the third consecutive month, Basu says, forward indicators suggest that non-residential construction will continue to languish. Moreover, he says that outside of health care, which is likely to remain a substantial source of work going forward because of demographic factors, few other sectors offer much promise.
Basu says non-residential construction is being affected by growing investor caution in the wake of slow job growth and continuing problems in Europe relating to weak economic activity and sovereign debt.
As for the job figures, Basu finds ‘really nothing to cheer about.’ A number of factors contributed to the fall in heavy/civil employment, he says, not least of which is a slowdown in federal spending.
However, not all of the recent data is negative.
Despite having dropped back, the forward order book is holding up reasonably well for now. As at March 31, according to ABC data, the average American contractor had 7.4 months’ worth of work on the books – down from 7.82 months in December but slightly up from 7.33 months one year ago and 6.07 months as of March, 2010.
Moreover, even if the non-residential outlook is bleak, forward looking indicators in residential construction are encouraging. Across the US, permit authorisations for privately owned housing units were stronger in both March and April than for any other months over the past two years.
Arguably the most likely near-term outcome, therefore, is for non-residential building and engineering construction activity to remain subdued (albeit at higher levels than last year) while the recovery in residential building continues to take hold.
The latest figures may seem to paint a negative picture, but at least America’s construction industry is in better shape now than it was 12 months ago.