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August Construction Spending Sets Record

Ken Simonson, chief economist of The Associated General Contractors of America last week commented on the release by the Census Bureau of figures for construction spending in August, noting, "construction spending set a record in August of $1.108 trillion at a seasonally adjusted annual rate. The figure is especially impressive in that Hurricane Katrina disrupted some construction late in the month. Construction activity will be affected for many months to come by the traumatic impacts of Katrina and Rita. Contrary to what some people have said, I do not expect a quick rebound in construction in the hurricane zone.

"There will be a lot of emergency work, such as the repairs to levees, highways and bridges, rail lines, and ports and channels that are already under way. But residential and private nonresidential construction will not get going on a large scale for several months, or even years. Much of that will only substitute for new construction that would have occurred anyway and will not be a net addition. Furthermore, I expect economic activity nationwide, including construction, to grow a bit more slowly than would have been the case without the hurricanes.

Simonson added that he expects to see a pickup in construction in regions where individuals and businesses relocate, especially within 200 miles of the storm-struck areas. "Also, selected industries will add production capacity to serve the needs of the refugees,” he said. “These include companies making manufactured housing and temporary offices and classrooms, truck trailer and body makers, and perhaps producers of some construction and relief supplies.

"Many construction materials are likely to be pricier and scarcer because the storms knocked out so much supply, even if demand does not pick up. The loss of substantial oil and natural gas production will affect supplies and prices for diesel fuel, asphalt, roofing materials, insulation, polyvinyl chloride (PVC) pipe, membranes, coatings, and assorted construction plastics. The temporary closure of cement terminals around New Orleans, which accounted for 12 percent of U.S. cement imports in the first half of 2005, will worsen a shortage that had affect 32 states even before Katrina hit. Rubber for construction equipment tires, gypsum wallboard, and some kinds of steel may also be harder to find or more expensive because of the storms."

According to Simonson, AGC has been urging the Commerce Department to suspend a 55-percent anti-dumping duty on Mexican cement. "That would immediately add to the cement supply in the entire Gulf region, as well as states in the Southwest and West that have experienced severe cement shortages,” he said. “U.S. producers would not be injured, since these imports would substitute for cement that now takes weeks to arrive from countries like China — the number two import source after Canada — and South Korea — number four."

TAGS: Syndicate
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