WASHINGTON - The Oct. 31 reports on gross domestic product
and construction spending from the Commerce Department “provided a real treat
to the economy in the third quarter,” according to Ken Simonson, chief
economist for the Associated General Contractors of America (AGC).
“Net of inflation, or real, investment in private
nonresidential structures jumped 12 percent in the third quarter, the eighth
straight quarter this investment category has outpaced gross domestic product
growth,” said Simonson. “You have to go back to the mid-1950s to find another
period when private nonresidential construction was so persistently robust.”
The Census Bureau’s construction spending report showed that
private and public nonresidential construction climbed 1.8 percent for the
month of September and 17 percent over the past 12 months. According to
Simonson, these numbers were enough to overcome the 1.4 percent fall in
residential spending for the month and nearly offset the 16 percent residential
drop from 12 months ago.
“There was nothing scary in the nonresidential categories,
even for credit-sensitive commercial types,” Simonson observed. “All 16 census
categories were up for the month, and all but religious structures were higher
on both a September-over-September and a year-to-date basis.
Simonson predicted that investment would slow over the next
several months in income-producing properties such as office, hotel, and retail
structures, however, he expected accelerating investment in energy and power
projects, plus continued strength in hospital and educational construction, to
keep the nonresidential totals up.
“My biggest concern is higher costs,” Simonson concluded.
“Diesel prices, which affect contractor’s trucks and fuel
surcharges on delivery of materials, are 25 percent higher than a year ago and
seem poised to rise further. Other materials, especially imports, are likely to
accelerate as well. And construction wage rates are going up faster for the
economy as a whole. But public agencies, from transportation departments to
county councils, have failed to budget enough for construction cost escalation,
and instead are trimming projects.”
For more information, visit www.agc.org.
Publication date:11/12/2007
