U.S. construction spending falls on slump in commercial projects

Nonresidential construction dropped 6.9% in January, partly due to winter storms, tight credit and high vacancy rates.

Bob Willis, Source: Bloomberg

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Construction spending in the U.S. fell more than forecasted in January, paced by the biggest slump in commercial projects in 17 years, showing that the industry will continue to be a laggard in the economic recovery.

The 0.7% drop brought the value of all projects down to a $791.8 billion annual rate, the lowest since August, according to the U.S. Dept. of Commerce. Outlays on private non-residential works dropped 6.9%, the most since January 1994, which may reflect the influence of winter storms. This January was the fifth snowiest January in 45 years of satellite coverage, according to the National Climatic Data Center.

Construction of power plants, hospitals, hotels, and office buildings dropped during the month as tight credit and high vacancy rates restrained investment.

“Office vacancies are high and consumer spending is weak, making the need to expand into shopping centers fairly limited,” Neill Dutta, an economist at Bank of America Merrill Lynch Global Research in New York, said before the report.

Private construction spending fell 1.2% in January from the prior month. Spending on public construction fell 0.1%, the report said. Federal construction spending increased 9.1%.

Government agencies are under pressure to cut spending. States are projecting $125 billion of budget deficits in fiscal 2012 and will lose most federal stimulus funds this year, the Washington-based Center on Budget and Policy Priorities said in a Jan. 21 report.

The Dept. of Commerce also revised the December reading up to a 1.6% drop from a previously estimated decline of 2.5%.

- Edited by Bettina Chang, Consulting-Specifying Engineer, www.csemag.com