Nonresidential Construction Spending Hits Record High

Mon November 12, 2007 - National Edition

Despite continued weakness in the residential construction sector, nonresidential construction spending in September increased 1.8 percent to a record $644 billion, according to a release of construction spending (value put in place) by the U.S. Commerce Department. Total construction spending for the month rose 0.3 percent to $1.16 trillion.

In the 12 months from September 2006 to September 2007, nonresidential construction spending increased nearly 17 percent, more than offsetting the decline in the housing market. Residential investment during that period declined 16.4 percent from $620 billion to $519 billion. As a result, total construction spending is down 0.8 percent from its September 2006 level of $1.17 trillion.

All nonresidential segments posted gains during the month, with all but one segment expanding over the 12 month period ending in September. The segments experiencing the strongest growth over the past year were lodging (76 percent), power (33 percent), public safety (32 percent) and educational (18 percent). Construction spending on religious institutions declined by 1.2 percent to $7.5 billion.

What This Means

The construction industry has been a study in contrasts for nearly two years with a strong nonresidential sector countering the on-going decline in residential construction. As Associated Builders and Contractors (ABC) has pointed out in previous analysis, the residential construction market will continue to weigh on the overall economy. However, ABC forecasts that nonresidential construction spending will slow next year due to the slowdown in the economy, tightening lending standards and increased caution on the part of builders and developers.

While the overall 0.3 percent increase in construction spending in September was larger than expected during the third quarter, ABC expects that total construction spending during the fourth quarter will be modestly lower. Still the sectors of lodging, education, health care and power are expected to remain strong.