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New Construction Numbers Offer Pleasant Springtime Surprises

by Peter Thomas Ricci

It’s been a rough year so far for new construction, but March’s report from the Census Bureau offered some pleasant, unexpected surprises.

Residential construction spending in March rose 0.8 percent from February to a seasonally adjusted annual rate of $369.8 billion, which is also 16 percent above March 2013’s level, according to new numbers from the U.S. Census Bureau. Those numbers come as a pleasant surprise, considering that the construction industry has been posting some rather lackluster numbers in recent months.

The Construction Numbers Game

Other key stats from the Census Bureau’s report included:

  • Overall construction spending, including private and public construction, rose 0.2 percent from February to March and 8.4 percent from March 2013 to a rate of $942.5 billion.
  • Private nonresidential construction rose 0.2 percent to a rate of $309.3 billion.
  • Meanwhile, public construction (think roads, bridges, etc.) continued to struggle, falling 0.6 percent to just $264.5 billion, the lowest rate since 2006.

The Nuances of Residential Construction

The post-bubble world of residential construction is quite complex, and obviously, positive numbers in March do not erase the two main issues facing homebuilding today – weak household formations, courtesy of a horrendous job market for college graduates (basically, they’re still living in their parent’s basement); and a high vacancy rate, which can make it difficult to argue for more new construction.

And new first quarter numbers from homebuilders show that those factors (along with falling affordability and rising interest rates) continue to hobble construction’s comeback. Though D.R. Horton and The Ryland Group reported higher net orders, all other large homebuilders saw orders fall, including Pulte Group (down by 6.5 percent) and M/I Homes (down 6.2 percent).

However, if you maintain a long-term perspective, it’s hard to be pessimistic about housing and construction’s futures. Since bottoming in 2009, residential construction spending has risen by 62 percent, according to Bill McBride’s latest computations over at Calculated Risk, and even at $370 billion, it’s still 45 percent below its 2006 peak and lower than historical averages. It’s safe to say, therefore, that construction still has plenty of room for improvement.

As always, stay tuned for our coverage of local construction spending, which we’ll look at tomorrow morning.

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