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Construction Spending Stumbles Again in May in U.S.; Stimulus Provides Only Bright Spot for Nonresidential

Construction spending shrank again in May, dropping 8 percent from a year earlier, although homebuilding and stimulus-funded public works increased from year-ago levels, according to an analysis of new Census Bureau data by the Associated General Contractors of America. “Stimulus has made a difference, but Congress needs to provide long-term funding for transportation and water projects to assure further economic growth,” Ken Simonson, chief economist for the construction trade association, said.

“Private nonresidential construction sagged 25 percent from May 2009 to May 2010, while public construction edged down 3 percent, and private residential construction rose 11 percent,” Simonson commented. “Federal stimulus funds helped keep public construction afloat and buoyed single-family construction.”

There were year-over-year increases of 5.6 percent for highway and street construction, 13.8 percent for other transportation, 5.1 percent for sewage and waste disposal, 5.0 percent for water supply, and 23 percent for conservation and development—all categories that have received stimulus funds, Simonson pointed out. In contrast, spending on all other public and all private nonresidential categories fell.

Simonson noted that new single-family home construction in May soared 31 percent from the depressed levels of a year earlier but new multi-family construction—condos and rental housing—tumbled 57 percent. “The first-time home buyer tax credit that expired at the end of April boosted demand for single-family and lessened demand for multi-family,” he said. “Those distortions have now ended, although Congress voted yesterday to extend the closing deadline until September 30 for families that had signed contracts by April 30.”

Simonson concluded, “It’s even more important not to let funding lapse for highway, transit and airport construction funding. Congress and the White House need to make these programs a priority, along with long-term funding for drinking water, wastewater and waterways.”

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