Construction spending growth fades in first half of 2002

Although the U.S. construction sector weathered this past recession well compared with manufacturers, especially those in any way tied to information technology and communications equipment, it is now clear that overall activity will grow during 2002 at its slowest pace in the past five years.

The nonresidential building sector, however, is really where the action hasn't been through the first half of 2002. But this perhaps unfairly generalizes the trends in a diverse mix of subsectors, which include the still-high-flying educational group and the still-cruising health and religious buildings subsectors. Taken as a whole, though, nonresidential building construction work has faded badly during 2002. Spending in the sector was 7.5% lower through the first five months of this year than during 2001. And this includes downward adjustments to the 2001 numbers. After recent revisions, nonresidential growth in 2001 is now estimated at just 0.4%.

The residential sector of building construction was still strong through the first half of 2002, even as the nonbuilding sector weakened and the nonresidential building sector turned negative. Given the fact that the U.S. is experiencing unprecedented economic and geopolitical uncertainty, probably the best that can be hoped for over the balance of 2002 is that gains will be held or a floor will be built under losses.

Through the first five months of 2002, the total value of construction put in place throughout the U.S., before adjustment for inflation, was running 1.2% ahead of the January-May 2001 pace. Spending in the residential sector through May 2002 rose to a level 6.4% greater than over the first five months of last year. This followed revised growth of 5.6% from 2000 to 2001.

Nonbuilding construction spending was 3.7% greater during January-May 2002 than during those same five months of 2001. Total spending in the sector increased by a revised 4.5% last year. The telecommunications subsector — although only about 11% of the heavy-construction spending total — has been instrumental in dampening overall nonbuilding gains this year.