Public spending on construction may decline from sequestration

| Published on March 6, 2013

ABC_Spending - February 2013 (3)The Associated Builders and Contractors (ABC) reports that nonresidential construction spending fell 3.3 percent in January, with outlays decreasing to a seasonally adjusted annual rate of $572.1 billion, citing a March 1 report by the U.S. Census Bureau.

Year over year, total nonresidential construction spending is up only 0.8 percent (unadjusted for inflation), according to the ABC report.

ABC Chief Economist Anirban Basu said that January’s construction spending decline was “particularly alarming because the loss in momentum spread deep into privately financed categories.”

In previous months, decreased spending in a number of public spending-oriented sectors, such as sewage and waste disposal and public safety, was counter-balanced by increased spending in intensely private segments, such as power and manufacturing, Basu points out.

“That changed in January, with privately financed segments like power and manufacturing reversing course and experiencing substantial monthly declines in construction spending,” Basu said in a written statement. “The upshot is that nonresidential construction spending is virtually unchanged over the past year.

“With the U.S. economy still stumbling to find sustained momentum, there is little reason to expect meaningful acceleration in overall nonresidential construction spending anytime soon,” Basu added. “In fact, it may be likely that public spending on construction will decline during the months ahead as automatic sequestration takes hold.”

However, Basu says, this doesn’t suggest that there aren’t “still bright spots in the U.S. economy.” He says that several financial markets have been “flirting with all-time highs, and the housing sector appears to be in the midst of a period of sustained recovery.”

The bottom line, Basu notes, is that “residential construction is positioned for continued expansion, while nonresidential construction will continue to limp along.”

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