Economy Watch: Construction Bounces Back

By Dees Stribling, Contributing Editor

U.S. construction spending, which had been slumping in recent month (even adjusted for the winter), rebounded in April, according to the Census Bureau on Friday. The rise was 2.2 percent in April compared with March, as opposed to a 0.6 percent drop in March compared with February. Not only that—in case a monthly move isn’t enough to be anything more than noise—spending for April 2015 increased by 4.8 percent compared with a year earlier. Whatever else these numbers mean, at least it’s true that construction spending isn’t in some kind of downward spiral overall.

In fact, certain categories of commercial property spending are still strong, especially the office and lodging sectors. Compared with a year ago, spending on office projects was up 19.3 percent in April for the year (and 3.7 percent for the month). Hotels, motels and other hospitality properties also did well, seeing a 17.6 percent increase since last year. Other kinds of commercial properties likewise turned in solid increases in spending in April: 17.5 percent for the year, and 2.2 percent for the month. The Census Bureau category “commercial” includes warehouse/distribution properties, but not manufacturing.

Manufacturing construction was up more than any other category that the government tracks year-over-year, even some of the fairly minor ones that do very well at times, such as amusement and recreation (up over 27 percent for the year). Spending on manufacturing facilities was up a modest 2.7 percent for the month, but more than 53 percent for the year in April. That doesn’t necessarily translate to many more jobs in that sector, since automation and advanced robotic technologies are a large component of new manufacturing facilities, but it does mean that the productivity per manufacturing employee will be increasing as newer facilities come on line, and probably that that sector of the economy (about 13 percent) is reasonably healthy.

Residential construction spending is also solid. In the private sector, new single-family construction spending edged up 1.6 percent for the month and up a fairly good 9.2 percent since this time last year, with homebuilders still being fairly optimistic (the latest NAHB numbers, with an index still over 50, show that). Multifamily construction in the private sector did even better for the month and year, coming in up 3.1 percent and almost 25 percent, respectively, but multifamily tends to be volatile. Even so, more apartments are being built: the demand is ongoing and strong.