• Residential, Non-residential Sectors Heading in Opposite Directions

    July 1, 2003
    The housing and non-residential construction industries appear to be heading in opposite directions, says Kenneth D. Simonson, chief economist for the

    The housing and non-residential construction industries appear to be heading in opposite directions, says Kenneth D. Simonson, chief economist for the Associated General Contractors of America (AGC), who bases his conclusion on several recent construction data reports. In the first four months of 2003, the value of construction put in place, as reported by the Census Bureau, was about 1% above last year’s total. However, this aggregate masks a 10% jump in residential construction that’s nearly offset by a 7% drop in non-residential construction. “Construction put in place data are tricky to interpret at this point,” Simonson cautions. “New census groupings and seasonal adjustment factors provide different totals from the Census’ old method for seasonally adjusted data, and the extremely snowy and stormy weather so far this year may have distorted some totals, especially home construction.” Several other reports suggest that residential and commercial market segments will continue to diverge for the next few months, if not longer, Simonson adds. For instance, the Office of Federal Housing Enterprise Oversight reported that its house price index, covering resales and refinancings, was up 6.5% from the first quarter of 2002 to the same quarter of 2003. That’s consistent with reports from the Census Bureau and the National Association of Realtors on new- and existing-home sales, respectively. Therefore, Simonson expects single-family construction put in place, which has risen 13% so far this year, to remain strong. “Conversely, the Institute for Supply Management reported that its monthly survey of manufacturing conditions shows continuing widespread weakness despite a few signs that the slump may end soon. That suggests there will be no short-term relief from the downturn in manufacturing construction, which has sagged 28% year-to-date from last year’s already depressed level,” Simonson says. Simonson points to at least two bright spots in the year-to-date nonresidential data: educational, health care. The large educational market is up by 2.6% in the first four months, with a 4% gain in public construction outweighing an identical slippage in the smaller private educational market. “So far this year, public college construction is the engine for these gains. But I think primary and secondary school construction will hold up better as state budget cuts start to erode higher education construction,” Simonson says. Health care construction has soared 13%, on top of 15% growth last year. Simonson says he doesn’t see any letup yet in overall health spending, and expects health-related construction will also remain robust. For the detailed U.S. Census report, visit www.census.gov/pub/const/C30/newtc.html.