Economy Watch: Construction Spending Continues Growth Trajecto

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In another good sign for the economy, and for commercial and residential real estate, U.S. construction spending continued to increase in October, the Census Bureau reported on Tuesday, coming in at an annualized rate of $1,107.4 billion, or about 1 percent above the September figure. Year-over-year, construction spending registered a healthy increase of 13 percent above October 2014. Both private construction spending and public spending gained ground for the month, with private up 0.8 percent for the month and 15.9 percent for the year, and public up 1.4 percent for the month and 6.1 percent for the year.

A number of real estate segments are still on fire when it comes to construction spending. Spending on hotels and other lodging projects dipped slightly for the month, but powered ahead 29.6 percent on an annual basis, to meet the demand for hospitality properties as the industry prepares to wind up its best year in recent memory, if not ever in the modern era. Likewise, the appetite for amusement and recreation properties is robust, with construction spending on that kind of property up 24.1 percent since October 2014. The office sector grew as well: up 15.3 percent year-over-year.

Residential construction spending gained 1 percent for the month, with new single family up 1.6 percent and new multifamily up 1.4 percent. For the year, apartment construction spending gained a whopping 27.9 percent, responding to demand in that sector that seems insatiable. Single-family construction spending also turned in a respectable increase, up 11.4 percent for the year. Only a few categories of construction spending shrank for the year: “commercial,” which for the Census Bureau includes industrial space, was down 2.2 percent for the year, probably as manufacturing slowed and imports dropped due to the strong dollar. Public spending on healthcare was also down, as well as power facilities.

Construction costs fell in November, according to IHS Inc. and the Procurement Executives Group, but not as much as in October. The current IHS PEG Engineering and Construction Cost Index came in at 43.7 for November, up from 40.9 the month before. The index remains below the neutral mark (50), meaning that costs are still falling, just not as broadly as in October. The index hasn’t pointed to rising costs for 11 months. This month’s current materials/equipment index was the second lowest reading in the last four years, IHS and PEG also reported, with carbon steel pipe, alloy steel pipe and exchangers all lower for the month.