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Construction Spending Up for First Six Months of 2016


Construction spending decreased in June for the third month in a row but most segments posted solid increases in the first half of 2016 compared to the same period in 2015.

The U.S. Census Bureau of the Department of Commerce announced that construction spending during June 2016 was estimated at a seasonally adjusted annual rate of $1,133.5 billion, 0.6 percent (±1.3 percent) below the revised May estimate of $1,140.9 billion. The June figure is 0.3 percent (±1.6 percent above the June 2015 estimate of $1,130.5 billion.

During the first six months of this year, construction spending amounted to $539.8 billion, 6.2 percent (±1.3 percent) above the $508.1 billion for the same period in 2015.

"The drop in construction spending over the past three months is probably more a reflection of the very strong gains posted early in the year than of cooling demand for construction," said Ken Simonson, Associated General Contractors' chief economist. "Nearly every major segment had first-half gains of more than 5 percent compared with a year ago. Contractors, surveys and the media all continue to report plenty of projects are starting or will soon."

Spending on private construction in June was at a seasonally adjusted annual rate of $851.0 billion, 0.6 percent (±1.0 percent) below the revised May estimate of $856.6 billion.

  • Residential construction was at a seasonally adjusted annual rate of $445.8 billion in June, nearly the same as (±1.3 percent) the revised May estimate of $445.9 billion.
  • Nonresidential construction was at a seasonally adjusted annual rate of $405.2 billion in June, 1.3 percent (±1.0 percent) below the revised May estimate of $410.7 billion.

In June, the estimated seasonally adjusted annual rate of public construction spending was $282.5 billion, 0.6 percent (±2.5 percent) below the revised May estimate of $284.3 billion.

Educational construction was at a seasonally adjusted annual rate of $67.5 billion, 0.5 percent (±5.8 percent) below the revised May estimate of $67.8 billion.

Highway construction was at a seasonally adjusted annual rate of $88.0 billion, 1.4 percent (±5.4 percent) below the revised May estimate of $89.2 billion.

“The key concept in this report, core construction, is not itemized," said Patrick Newport, U.S. economist for IHS Global Insight. "It's calculated by adding four pieces used as source data in the national income accounts: single-family, multifamily, state and local government, and private nonresidential construction. In the first quarter, core spending racked up a respectable 7.3 percent (annual rate) gain. It keeled over in the second quarter, falling 5.6 percent.

“Should one be concerned?" Newport asked. "At this point, we think not. Construction spending at a monthly and quarterly interval is jumpy. In the second quarter, the volatile state and local category fell 16.2 percent, accounting for the lion's share of the decline in total spending. Single-family construction, which reflects activity in single-family housing starts over the prior 12 months, down 10.5 percent in the quarter, also tumbled. We are expecting better third-quarter residential spending numbers because new home sales have posted solid gains recently. The outlook for residential construction this year is for positive growth driven by a pickup in household formation.

"Private nonresidential spending has been about flat for the last 12 months," Newport continued. "This category consists of 11 subcategories whose recent performances have been mixed – manufacturing, education and communications are slipping; office and lodging are going strong; and the remaining categories are either moving laterally or inching up or down. The outlook for the nonresidential category, which is mainly driven by the medium to long term economic outlook, is for modest gains in the second half of 2016 and in 2017.

"Public spending, which fell 0.6 percent in June but plunged in the second quarter, is volatile because it's decentralized and sensitive to weather," Newport concluded. "The second quarter drop is an aberration – with federal support infrastructure spending in the pipeline, spending should pick up soon."