Early dip in nonresidential spending ominous

June 01, 2002 |

After recording 8.1 percent growth in 2000, nonresidential construction spending increased by an estimated 3.3 percent between 2000 and 2001. But total nonresidential construction spending through the first two months of this year ran 7 percent below the total of the same period in 2001, foreshadowing a slight decline expected for the year. The outlook for 2003 is considerably brighter, however.

Although the value of work being completed on most publicly financed buildings remains strong, privately financed commercial and industrial building project activity sharply declined in recent months.

The commercial sector of nonresidential building construction has seen its fortunes plummet during the past year. Through the first two months of this year it was running 18.8 percent behind the 2001 total.

Total spending for new construction of commercial buildings was estimated at $131.4 billion during 2001, a decline of 1.6 percent from 2000. A steeper decline of 6 percent is expected this year. But look for a much stronger U.S. economy to boost spending in all commercial building subsectors in 2003.

Industrial construction spending also has plunged during the past year. Spending during the first two months of this year was 36.7 percent less than during January and February 2001, and trends in the industrial sector are continuing to deteriorate despite some signs of a bottoming out in the commercial market sector. Here, too, construction spending this year should fall at a steeper rate than in 2000-2001. But a resurgence in manufacturing sector production and investment will lead the industrial market to strong growth in 2003.

The growth rate for the institutional sector didn't skip a beat during 2001, continuing its strong growth trend. Total institutional spending increased by an estimated 10 percent last year. And January and February 2002 spending was a very healthy 13.8 percent higher than during the first two months of 2001.

Health facilities and educational spending grew by 7.1 percent and 21.8 percent, respectively, during the first two months of 2002, this on the heels of education's 12 percent gain in 2001.

Slower growth is all but inevitable this year, with a larger share of declining government revenues being devoted to public safety investments. But overall institutional spending should rise solidly again, in contrast to declines expected in commercial and industrial.

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