Friday, 22 July 2011

Another setback for the Architectural Billings Index

June marked the third consecutive decline in revenue at U.S. architecture firms as measured by the Architecture Billings Index (ABI). As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lag time between architecture billings and construction spending.

The American Institute of Architects (AIA) reported the June ABI score was 46.3, almost a full point from a reading of 47.2 the previous month. This score reflects a continued decrease in demand for design services (any score above 50 indicates an increase in billings). However, the new projects inquiry index was 58.1, up sharply from a mark of 52.6 in May.

“This seems to be a case of not thinking it can get any worse – and then it does,” said AIA Chief Economist, Kermit Baker, PhD, Hon. AIA. “While a modest turn around appeared to be on the way earlier in the year, the overall concern about both domestic and global economies is seeping into design and construction industry and adding yet another element that is preventing recovery. Futhermore, the threat of the federal government failing to resolve the debt ceiling issue is leading to higher borrowing rates for real estate projects and should there actually be a default, we are likely looking at a catastrophic situation for a sector that accounts for more than ten percent of overall GDP.”

Key June ABI highlights:

◦Regional averages: West (51.7), Northeast (47.5), South (47.3), Midwest (44.6)
◦Sector index breakdown: mixed practice (51.5), commercial / industrial (50.0), multi-family residential (49.6), institutional (45.9)
◦Project inquiries index: 58.1
Read More.

Thursday, 21 July 2011

NC Court of Appeals rules on partial lien waiver case

By Gregory L. Shelton
Horack, Talley, Pharr & Lowndes, P.A.
Reprinted from
Construction Law Carolinas

Earlier this week, in Wachovia Bank N.A. v. Superior Const. Corp., COA10-1158, the North Carolina Court of Appeals reversed a lower court’s controversial determination that partial lien waivers signed by a general contractor effectively changed the date of the contractor’s first furnishing of labor and material. My colleague, Chris Osborn, summarized the lower court decision in an article published last summer in the NCBA Construction Law Section’s periodical, Change Order.

The lower court decision, Wachovia Bank, N.A. v. Superior Construction Corporation, et al., 2010 NCBC 9, Mecklenburg County Civil Acton No. 07 CVS 21256, caused grave concern among contractors, subcontractors, and suppliers, because under North Carolina law, the first furnishing date determines the lien claimant’s place in line to receive proceeds from a foreclosure sale. Thus, even if the lien claimant files its lien at the end of the project, a perfected mechanic’s lien will relate back and become effective from the first day the general contractor started work.

Priority is important because in North Carolina its “first come, first served” when the proceeds of a foreclosure are distributed. In most situations, the construction lender or bank will record a deed of trust before the contractor begins work. In those cases, the lender will be made whole before the contractor gets a penny from the foreclosure sale. The slump in property values makes priority even more important these days, because a contractor in second place may end up empty handed.

The situation in Wachovia was unusual in that the contractor, Superior Construction, started out at the front of the line. The developer of the project borrowed in excess of $22 million from Wachovia. The construction loan was secured by a Deed of Trust recorded on May 19, 2005. Superior Construction started work on April 22, 2005, approximately one month before Wachovia recorded its Deed of Trust. As work progressed, Superior Construction executed and delivered two partial lien waivers covering work performed up to April 30, 2005 and May 31, 2005 respectively. The partial releases provided:

Whereas Superior Const. has been employed by [Intracoastal] LLC to furnish labor and/or materials for the project known as [The Preserve.] Now, therefore, the undersigned, for and in consideration of the sum of $ [ _ , __ .__] and other good and valuable consideration, the receipt whereof hereby acknowledged, do hereby waive, relinquish, surrender and release any and all lien, claim, or right to lien on the above said described project and premises, arising under and by virtue of the mechanic’s lien laws of the state of North Carolina on account of any labor performed or the furnishing of any material to the above described project and premises up to and including the (day) ______of (month)______ , (year) 2005. Upon receipt of this month’s draw request of $ [ ____, ___. __]. Superior Construction will also waive and release any and all liens or claims, or right to lien on the above project as it relates to the stated draw request.

The trial court concluded that the “any and all lien, claim, or right” language in the lien waiver acted to change the date of Superior Construction’s first furnishing. This interpretation was a dramatic departure from the entrenched view that lien waivers reduce the amount that can later be claimed by the contractor but do not affect the contractor’s priority. Superior Construction’s “relation back” date thus changed from April 22, 2005 (about a month before the Deed of Trust was recorded) to May 31, 2005 (twelve days after the Deed of Trust was recorded). The trial court’s decision let Wachovia move to the front of the line.

The Court of Appeals disagreed with the trial court’s interpretation of the lien waiver language. Reading the “on account of” language to mean “because of,” the Court of Appeals concluded that the language used in the lien waivers “does not in any way refer to a waiver of Superior’s ‘place in line;’ instead, it simply refers to a waiver of ‘any and all’ lien rights applicable to specific payments.” The Court of Appeals moved Superior back to the front of the line.

All’s well that ends well? I’m not so sure. The Court of Appeals left the door open for owners to artificially change the first furnishing date through artfully drafted lien waivers. “Although a party may certainly elect to forgo the protections of [the mechanic’s lien statute],” noted the court, “including its right to have its lien treated as having taken effect from the date of first furnishing of labor or materials, by executing a lien waiver . . . the scope of the rights waived hinges upon a proper understanding of the relevant waiver language.”

The Court of Appeals in the above-quoted language appears to be referring to subordination agreements, wherein the contractor agrees to stand behind a lender. While the subordination agreement does move the lender in front of the contractor, this is accomplished without altering statutorily-defined events such as first or last furnishing dates.

I question whether statutorily defined events such as dates of first and last furnishing may be altered by contract. Mechanic’s liens are subject to strict statutory requirements that may not be altered by contract or whim. We know, for example, that an owner may not agree to extend the 120 day lien filing deadline for a contractor. If a lien on property is not filed within 120 days of last furnishing, it is lost no matter what. We can also assume that an agreement to contractually establish the date of first furnishing earlier than the date the contractor actually arrived on the project site would not be enforced. I suspect that lenders with a first position Deed of Trust, or subcontractors whose priority may be affected through no fault of their own, might take issue with such a practice. By my reckoning, the Court of Appeals devoted too much attention to the lien waiver language and not enough to the provisions of Chapter 44A (the NC lien statute).

Finally, keep in mind that the proposed lien law revisions in House Bill 489 may be enacted into law. If this occurs, priority will be established through the filing of a Notice of Commencement, and partial and final lien waivers will follow a statutorily prescribed standard form. Read More.

Wednesday, 20 July 2011

Housing starts in the US surge on apartment construction

Bloomberg News reports housing starts in the U.S. jumped more than forecast in June as better weather allowed the struggling industry to break ground on delayed projects. Apartment construction, a volatile part of the industry, surged 31.8 percent last month. Single-family home construction rose a more modest 9.4 percent. Building permits, a gauge of future construction, increased 2.5 percent.

Work began on 629,000 houses at an annual pace, up 15 percent from May and the highest level in five months, figures from the Commerce Department showed today in Washington. The level topped the most optimistic forecast in a Bloomberg News survey of 71 economists. Building permits, a sign of future construction, unexpectedly climbed 2.5 percent.

While the increase points to stabilization in construction, declining home values and delays in processing foreclosures mean it may take years to clear the market of distressed properties. Lennar Corp. (LEN) is among builders saying the lowest point of the housing recession has probably already passed.

Housing starts were projected to rise to a 575,000 annual rate, according to the survey. Estimates ranged from 500,000 to 610,000 in the Bloomberg survey. The Commerce Department revised May’s total to a 549,000 pace, less than a previously estimated 560,000.

Building permits rose to a 624,000 annual pace in June. They were projected to drop 2.3 percent to a 595,000 level, according to the survey median. The gain was led by a 6.9 percent jump in applications for work on multifamily units.

Construction of single-family houses increased 9.4 percent to a 453,000 rate in June, the most since November 2010, from the prior month. The monthly gain was the biggest since June 2009. Work on multifamily homes, such as townhouses and apartments, surged 30 percent to an annual rate of 176,000. It was up 100 percent from June 2010.

Demand for apartments and other multifamily housing that make up about a quarter of starts may be beginning to increase as foreclosures turn more Americans into renters.

Starts climbed in all four regions, led by a 35 percent jump in the Northeast and a 25 percent increase in the Midwest.

June starts compare with the 587,000 units begun last year, the second-fewest on record. Home construction totaled 554,000 units in 2009, the lowest since record-keeping began in 1959. Starts reached a peak of 2.07 million in 2005.

With an overhang of distressed homes making their way through the foreclosure pipeline, more cash investors are looking for bargain, foreclosed homes and eschewing new houses. At the same time, unemployment above 9 percent and strict lending standards make it harder for most Americans to take advantage of mortgage rates that are close to a record low.

Lender delays in processing home-loan defaults will push as many as 1 million foreclosure filings from this year into 2012 or beyond, casting an “ominous shadow” on the housing market, RealtyTrac Inc., a housing data provider, said last week. A clogged foreclosure pipeline may prevent real estate prices from finding a bottom as the housing slump extends into a sixth year.

Some builders see signs of stabilization. Miami-based Lennar, the third-largest U.S. homebuilder by revenue, last month reported second-quarter profits that beat analysts’ estimates on rising earnings at its distressed-investing unit.

“It is beginning to feel like the worst days of the housing market are getting behind us,” said Stuart Miller, chief executive officer of Lennar, on a June 23 conference call. “Stabilization and recovery will continue to be a slow and rocky process.”
Read More.

Monday, 18 July 2011

May sets mark for highest level of remodeling activity on record

BuildFax announced its BuildFax Remodeling Index (BFRI) for May 2011 and it shows that as the temperature rose across the country remodeling was red hot, as May 2011 became the month with the highest level of remodeling activity since the Index was introduced in 2004.

The report reveals continued month-over-month gains for every region of the country, with data demonstrating that consumers are continuing to invest in remodeling, even as home prices continue to dip and unemployment continues to rise.

The latest BFRI, detailing remodeling activity from May 2011, indicates that residential remodeling activity registered the nineteenth-straight month of year-over-year gains, demonstrating that many Americans are continuing to remodel their current homes, rather than purchasing new homes.

The BFRI is the only source directly reporting residential remodeling activity across the nation with monthly information derived through related building permit activity filed with local building departments across the country. This monthly report provides month-over-month and year-over-year comparisons on trends in remodeling activity for the entire United States, as well as for the four major regions of the country: Northeast, South, Midwest, and West.

The May 2011 index rose 22 percent year-over-year and for the nineteenth straight month—in May to 124.3, the highest number ever in the index to date.

“Through the first five months of 2011 we have seen impressive gains within the remodeling index and May has continued that trend with a record setting month,” said Joe Emison, Vice President of Research and Development at BuildFax. “Even with the continued struggles in the economy, the remodeling industry has been a bright spot, as consumers look to make upgrades to their current homes, rather than purchasing a new residence. Based on the trends from the first months of this year, we expect to continue seeing strong gains from coast to coast.”

All regions were up month-over-month, with the Northeast up 9.8 points (12%), the South up 7.3 points (7%), the Midwest up 16.3 points (18%), and the West up 8.7 points (7%). Even though the Midwest was up month-over-month, it continues to lag the other regions (as it has for the past three months) in year-over-year performance, down 10.6 points (11%) year-over-year. All other regions were up year-over-year, with the Northeast up 7.2 points (9%), the South up 9.5 points (10%), and the West up 20.7 points
(21%). Read More.

Staking your claim

By: Gregory L. Shelton
Horack, Talley, Pharr & Lowndes, P.A.
Reprinted from Construction Law Carolinas


Contractors dealing directly with the federal government should not be bashful when seeking money, time, or some other contractual relief from the government. The Contract Disputes Act (“CDA”) permits contractors to make claims against the government, but the claim must be stated clearly and unequivocally to give the contracting officer adequate notice of the basis and amount of the claim. Adequate notice serves four purposes: First, it permits the contracting officer to give meaningful, reasoned consideration to the claim; Second, it requires the basis of the claim to be revealed to induce settlement discussions before litigation commences; Third, it allows for adequate identification of the issues should litigation be necessary; and Fourth, it buttresses other CDA claim requirements to ensure the integrity of the overall claims process.

It is unwise to be too coy or clever when making the claim. In Northrop Grumman Computing Systems, Inc. v. U.S., Case No. 07-613C, the U.S. Court of Federal Claims recently held that a contractor that failed to disclose an assignment of certain contract rights failed to provide adequate notice. The contractor carefully drafted its claim to avoid mentioning the assignment, likely to avoid denial of the claim under the Anti-Assignment Act. The court determined that the contractor’s failure to reveal that it was sponsoring the claim of an assignee prevented the contracting officer from giving meaningful consideration “to a host of issues raised by the assignments.”

If you ask the sovereign for money, be clear, unequivocal, and thorough. If your claim does not pass muster under the CDA, sovereign immunity will bar your claim.
Read More.

Friday, 15 July 2011

Triangle is No. 2 in green-jobs growth

The Triangle is the nation's second-fastest growing region for green jobs, according to the Brookings Institution, reports the News & Observer.

"Sizing the Clean Economy," is the first attempt at a comprehensive assessment of the nation's green jobs sector. Regional studies issued in the past have not been consistent in how they define and count green jobs, making comparisons all but useless.

For example, North Carolina had nearly 79,000 green collar jobs in 2010, according to the Brookings count. That total is much higher than the 12,500 green jobs counted last year by a state advocacy group, the N.C. Sustainable Energy Association.

The Brookings study found that North Carolina has the nation's 11th largest statewide green economy, while the Triangle is the 30th largest regional green economy.

Brookings reports that the Triangle had 16,677 clean economy jobs last year, a 13.7 percent increase from 2003. Only Knoxville, Tenn., grew at a faster clip, although the Triangle's clean jobs sector is bigger than Knoxville's.

The report says the average wage in the Triangle's green sector was $40,795 in 2009. That's not far off the average for the nation's 100 largest metro areas, which was $43,133.

"Raleigh has a disproportionate number of jobs in training, smart grid, pollution reduction, regulation, and architecture and construction services," the report says. "In Raleigh, job expansions were largely attributable to the government and public transit segments, with small contributions from smart grid and a few others."

Duke University recently issued a study identifying the Triangle as one of the nation's hubs for smart grid development and research.

Brookings, one of the nation's most influential think tanks, takes an expansive view of the green economy, including such categories as retail, legal, arts, entertainment, food services and insurance. By the Brookings count, the U.S. clean jobs sector is bigger than the fossil fuels industry. Read More.

Thursday, 14 July 2011

Construction material costs outrun finished building prices in June

Construction costs again outpaced other producer prices in June but contractors remained unable to recoup the costs through higher bid prices, according to an analysis of producer price index figures released by the Associated General Contractors of America. Association officials said the ongoing cost squeeze will put new pressure on construction firms to reduce staff and possibly close.

“Despite a one-month dip in the prices of some key materials in June, construction costs rose on a year-over-year basis at the highest rate since 2008,” said Ken Simonson, the association’s chief economist. “Worse, prices are rising amid continued layoffs and construction spending levels that hit an 11-year low in May.”

Simonson noted that the producer price index for all construction materials inched down 0.1 percent in June but increased 8.3 percent over the past 12 months, whereas the index for finished goods fell 0.7 percent for the month (0.4 percent, seasonally adjusted) and climbed 7.0 percent over 12 months. Meanwhile, the price of finished buildings was unchanged in June and rose only 2.0 percent or less over the past year, depending on building type.

Simonson said outsized year-over-year price increases for construction were attributable to the indexes for diesel fuel and metals. The index for diesel rose 1.4 percent in June and 50 percent since June 2010. Among key metals, prices for copper and brass mill shape climbed 0.4 percent and 26 percent, respectively; aluminum mill shapes rose 0.4 percent and 17 percent; and steel mill products dropped 1.7 percent in the latest month but increased 7.0 percent from a year earlier.

“All of these materials are in worldwide demand, with supplies that are either tight or threatened by international turmoil,” Simonson commented. “In contrast, materials that go strictly for construction have dropped in price as demand remains weak.” He cited as examples the price indexes for gypsum products such as wallboard, which fell 2.8 percent in June and 7.4 percent over 12 months; lumber and plywood, 0.9 percent and 4.1 percent; and concrete products, 0.1 percent and 0.2 percent. Read More.

Wednesday, 13 July 2011

CAGC announces success in several end-of-session legislative priorities

The Carolinas Associated General Contractors (CAGC) reports successful outcomes with several of the association's end-of-session legislative priorities. These included defeat of the gas tax cap, certificate of merit for designers, and the force-account proposal.

* The NC General Assembly did not pass the proposal to cap the gas tax thus keeping transportation funding intact to the tune of $1 billion over the next decade.

* The state House not approving a Senate-passed bill that would have required the construction industry to first get a Certificate of Merit before any civil action could be taken against designers. The bill, still alive for next year's short session, would have resulted in a costly and cumbersome process that could have had a chilling effect on the construction industry. CAGC led successful efforts to keep the bill bottled up despite an aggressive campaign waged for the bill by architects and engineers.

* Legislative approval of studies involving improving laws concerning underground safety for utility contractors and others as well as another study concerning lien/double payment issues. Proposals are expected to be made for the short session, which is expected to begin next spring.

* Approval of a budget bill that includes $559 million for UNC System construction projects but does not include a provision, strongly opposed by CAGC, that would have increased the force-account ceiling dramatically for universities and community colleges at a time when the construction industry's unemployment rate is around 20 percent. The unsuccessful proposal would have raised the ceiling to $500,000 for construction work that could have been done by UNC System employees (now at a $200,000 maximum) and community colleges employees (now at a $125,000 threshold).

* Approval of a gradual, phased-in, new e-verify program for new employees for all employers with 25 or more employees, a main priority for Republican lawmakers. The watered-down bill deleted previous versions of the proposal that would have only applied only to public construction work and would have involved a felony for failure to e-verify new employees. Read More.

Tuesday, 12 July 2011

Non-residential construction slips up in May

Despite a downturn in overall construction spending, private nonresidential construction spending increased 1.2 percent in May, according to the July 1 report by the U.S. Census Bureau.

However, the Associated Builders & Contractors reports private nonresidential construction is down 5.1 percent from the same time last year. Total nonresidential construction spending – which includes both privately and publicly financed construction – was $516.1 billion in May, up 0.1 percent for the month but down 6.9 percent from May 2010.


Eight of the sixteen nonresidential construction subsectors posted increases in spending in May, with the biggest gains experienced in power, up 3.6 percent; sewage and waste disposal, 3.6 percent higher; conservation and development, up 3.5 percent; and lodging, up 2.8 percent. Compared to the same time last year, only three subsectors posted gains, including power construction, up 9.9 percent; conservation and development, 3.8 percent higher; and commercial construction, up 0.1 percent.


In contrast, eight subsectors experienced decreases for the month, including religious construction, down 3.8 percent; communication, 2.6 percent lower; and educational construction down 2.6 percent. The three subsectors with the largest year-over-year losses are religious construction, down 25.5 percent; lodging, down 25.1 percent lower; and manufacturing, down 19.4 percent.


Public nonresidential construction spending slipped 0.8 percent in May and is down 9.1 percent year-over-year. Residential construction spending fell 2.1 percent for the month and is down 6.9 percent from the same time last year. Overall, total construction spending – which includes both nonresidential and residential construction – was down 0.6 percent from April and down 7.1 percent compared to May 2010.
Analysis

“Today’s release is quite revealing,” said Associated Builders and Contractors Chief Economist Anirban Basu. “Clearly, the economic improvement that we had observed through March of this year has translated into better privately financed construction activity. Private nonresidential construction spending expanded in May even as public nonresidential construction declined and the nation’s housing sector continues to swoon.


“One of the most interesting developments is the increase in construction spending related to lodging, arguably the nonresidential construction segment most affected by the economic downturn and associated credit crunch,” said Basu. “Though the year-over-year loss in lodging construction activity is still large, it is falling as monthly data steadily improve.


“Commercial construction is up slightly from the same time last year, another indication of improved private construction activity,” Basu said. “However, it is quite likely that the recent slowing in economic growth will at least temporarily interrupt the private construction recovery currently being observed. Moreover, it is likely that the impact of rising construction materials prices earlier this year are not yet fully reflected in today’s construction spending report, and this also may serve to stall current momentum.
Read More.

Monday, 11 July 2011

An exception to a statute of limitations defense

by Melissa Brumback
Construction Law in North Carolina


We’ve discussed the statute of limitations in previous postings. A recent North Carolina Court of Appeals case described in Construction Law in Carolina offers one exception to a statute of limitations defense– estoppel.

Estoppel is the act of lulling a party into not filing a lawsuit through your actions. You are then deemed “estopped” from asserting the statute of limitations as a defense.

That is, a party cannot use the statute of limitations as a sword to benefit from his own conduct which induced a plaintiff to delay filing suit. Proof of actual fraud or bad faith is not required; however. The “basic question” is whether defendant’s actions “have lulled the plaintiff into a false sense of security and so induced [the plaintiff[ not to institute suit in the requisite time period.” Cleveland Const., Inc. v. Ellis-Don Const., Inc. et al., __ N.C. App. __, __ S.E.2d __ (5 April 2011).

In that case, the general contractor on a public hospital project, Ellis-Don, asked Cleveland Construction Inc. (CCI), one of its subcontractors, to delay making its own delay claim on the project. The general contractor sent a letter to CCI asking it not to sue it in order to present a “unified front” to the State during the State Construction Office’s administrative claims process.

The Court found that Ellis-Don affirmatively represented to CCI that it was pursuing CCI’s claims as part of its overall claim against the State. The Court further found that Ellis-Don affirmatively represented to CCI that CCI should not initiate a claim because that would jeopardize the success of the total contractor recovery with the State. As such, Ellis-Don lulled CCI into a false sense of security, as CCI reasonably believed that Ellis-Don would pass through to CCI any proceeds attributable to its claim from Ellis-Don’s settlement with the state. Ellis-Don was, therefore, equitably estopped from asserting the statute of limitations when CCI later sued Ellis-Don on those same claims.

Here, Ellis-Don tried to benefit from including CCI’s claim in its overall claim at the State Construction Office, and later benefit from CCI’s failure to adhere to the time limits imposed on bringing claims. The Court held that a contractor cannot have its cake and eat it too. (After all, too much cake is bad for anyone).

Practice Note: Do not count on the theory of equitable estoppel for untimely claims. A court could decide you were not reasonable in holding back from initiating legal action, in which case your claim would be denied. Equitable theories are to prevent injustice, but you cannot and should not rely on them. Read More.

Friday, 8 July 2011

AIA to develop database of stalled construction projects

Real estate busts tend to be particularly troublesome for architects. Developers’ plans for new buildings are among the first to be tossed aside when money runs short. With the unending drought of new work clearly in mind, the profession’s leading trade organization is looking to alleviate some pain, reports the Wall Street Journal.

The American Institute of Architects is crafting a database that would catalog stalled development projects around the country, eyeing as an audience lenders and equity investors who might be on the hunt for deals. While the plan is without much detail at this point — the group announced the effort last week as part of the Clinton Global Initiative’s CGI America conference — the organization aims to put together the database of stalled projects by the end of the year that would rank or give preference to viability.

Architects saw massive layoffs back in 2008 and 2009, and at least thus far this cycle, the market has been slow to require their services once again. Even as commercial real estate prices boom in some major markets (New York City; San Francisco; Washington, D.C.), lenders are reticent to finance a new construction project given that the failure of many a condo tower nearly brought them to their knees within the past three years.

In short, that means there’s not much architectural work to go around: The Architectural Billings Index fell below 50% in both April and May, indicating a decline in the amount of work on architects’ books nationwide. That came only after the index registered modest increases in the amount of work at the end of 2010 and the start of 2011.

One of the concepts behind the planned database is that there is a mismatch between stalled projects that make some economic sense and the billions of real estate investment dollars on the sidelines.

“There just seemed to be a lot of stories about how projects that seemed like they made a lot of economic sense just couldn’t get financing,” said Kermit Baker, chief economist for the AIA.

Of course, it remains to be seen whether more transparency and information about stalled projects will provide the necessary spark to get cranes moving again. Much of the reticence to lend for construction projects, after all, has less to do with a project’s merits than with banks simply not wanting to take large risks in the sector.

Mr. Baker said he expects the catalog of projects would be large—likely with several hundred projects on it. Read More.

Thursday, 7 July 2011

Construction spending hits 11-year low

Construction spending fell for the sixth straight month in May, touching an 11-year low, as shrinking public outlays and residential construction swamped a rise in private nonresidential work, the Associated General Contractors of America reported in an analysis of new Census Bureau data. The construction trade association’s chief economist, Ken Simonson, predicted spending patterns would continue to be uneven.

“Despite a few bright spots—power, manufacturing, and warehousing and distribution facilities—most construction is stuck in neutral at best or is shrinking,” Simonson said. “Five years removed from the peak in spending and jobs, the industry still faces a long road to recovery.”

Simonson pointed out that public construction spending has skidded 12 percent in the past eight months as state and local budget cuts have outweighed federal spending on stimulus and military base realignment projects. Meanwhile, the widely reported upturn in private apartment activity has yet to show up in the Census numbers.

Simonson noted that total construction spending declined 0.6 percent from April to May at a seasonally adjusted annual rate, putting the May rate at $753 billion, down 7.1 percent from a year ago and down 38 percent from the record high in March 2006. Private nonresidential spending increased 1.2 percent from April to May but fell 5.1 percent compared with the May 2010 level. Private residential spending was off 2.1 percent for the month and 6.6 percent year-over-year. Public spending dropped 0.8 percent and 9.3 percent, respectively.

The private nonresidential gains were concentrated in power construction—emissions control upgrades to coal-fired plants, renewable power installations, transmission lines, and oil and gas distribution—which jumped 4.4 percent in May and 11.5 percent from a year earlier, Simonson observed. Private transportation investments, such as trucking and air freight facilities, rose 4.5 percent for the month and 3.7 percent over 12 months. Manufacturing construction climbed 1.8 percent in May but was down 19.6 percent since May 2010.

Simonson commented that the largest residential category is currently improvements to existing single- and multifamily properties. These expenditures fell 3.8 percent for the month and 1.0 percent year-over-year, he said. New single-family construction sank 0.3 percent and 11.9 percent respectively, while new multi-family construction dropped 2.1 percent and 6.8 percent.

The two biggest public categories—highways and educational construction, which make up more than half of the public total—both contracted sharply in May, Simonson pointed out. Highway construction fell 1.5 percent for the month and 11.3 percent year-over-year, while education spending dropped 2.3 percent and 8.7 percent.

“Looking ahead, expect to see continued strength in power, manufacturing and distribution projects, along with a pickup in market-rate apartment construction,” Simonson concluded. “But declining public spending is likely to keep overall gains modest at best.”
Read More.