Positive First Quarter

The Associated General Contractors of America's (AGC's) Chief Economist Ken Simonson is encouraged to see that construction continued expanding in March, as the value of construction put in place hit a seasonally adjusted annual rate of $1.05 trillion, the 14th straight monthly record.

"For the first quarter of 2005 as a whole, construction exceeded the first-quarter 2004 total by 9 percent. Furthermore, the gains were widespread. Private residential construction was up 13 percent over the year-ago quarter, private nonresidential was up 7 percent and public construction was 3-percent higher," Simonson said. "I expect these results to continue for several more months, with both private and public nonresidential construction likely to strengthen further, offsetting a likely slackening of residential construction later in the year.

"There were some big winners in the first quarter. Manufacturing construction soared 31 percent and communication leaped 26 percent. Lodging jumped 16 percent, thanks to higher occupancy and room rates at hotels and higher attendance at business meetings and conventions. The broad commercial category climbed 9 percent, led by a 19-percent rise in multi-retail construction such as 'big-box' stores and shopping centers. Warehouse construction rose 11 percent, reflecting a recent rise in inventories. For a change, multi-family construction edged out single-family, 16 percent to 14 percent," he said.

Simonson expects public construction to advance later this year "if Congress completes work on an overdue highway bill. I anticipate continued strength in private nonresidential construction as well. But residential construction will probably fade later in the year as interest rates gradually move up."

Simonson said, "My biggest concern is prices for construction materials, which are running 8-percent ahead of last year's level. Today's report from the Institute for Supply Management shows price increases continued in April. Steel prices may flatten out, but other metals, cement, gypsum wall board, and petroleum-based products, as well as freight charges, are likely to cost a lot more than last year. Also, there are shortages cropping up for tires, insulation and possibly cement in some regions."