Nonresidential Investments Declines in 2012 Second Quarter
July 30, 2012

Investment activity for nonresidential projects has slowed, according to a gross domestic product report (GDP) released by the U.S. Commerce Department last week. The report shows investments to have risen by 5.3 percent in this year's second quarter - following a 7.5 increase in the first quarter.

The Associated Builders and Contractors Inc. (ABC) further reports that nonresidential fixed investments to increase by 0.9 percent, which has decreased from the 12.9 percent increase from the first quarter. Additionally, there was a 7.2 percent increase for nonresidential fixed investment in equipment and software following a 5.4 percent rise for the first quarter.

"The slump continues as both the U.S. economy and nonresidential construction slowed during the second quarter of the year," says ABC chief economist Anirban Basu. "There are a number factors to point your finger at, including the ongoing economic slowdown in much of the world, such as Europe, China and India, along with concerns regarding America's impending fiscal cliff. However, the second-quarter slowdown is due to more than a mere loss of confidence among business decision-makers and the accompanying sluggishness in construction starts. Government at every level is now curtailing spending."

According to the ABC, federal government spending in nonresidential sectors has decline by 0.4 percent for the second quarter after a 4.2 reduction in the first quarter. State and local government spending has also fallen by 2.1 percent - making this quarter the "eleventh consecutive quarter of declining state and local government spending."

"Given still weak government finances, genuine recovery in nonresidential construction will need to be driven by private expenditures," Basu says. "However, private construction decision-makers are not yet of the mind to push a significant volume of projects forward."

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