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Tuesday, May 10, 2011

The Construction Sector in the U.S. Economy

Suzanne M. Kirchhoff
Analyst in Industrial Organization and Business

The construction sector is a major component of the U.S. economy. During the past decade, construction was a prime beneficiary of low interest rates and the housing-led economic boom, but was also one of the largest casualties of the subsequent financial crisis. Construction spending comprised about 7%-8% of U.S. annual economic output from 1995 to mid-2000, reaching nearly 9% of gross domestic product at the peak of the housing run-up in 2006, before declining to about 5% in 2010. Likewise, construction employment ranged from a low of about 4.6 million during the early 1990s to a high of 7.7 million during the 2006 housing boom, and was about 5.5 million in early 2011.

There are three major segments of the construction sector: residential, commercial, and industrial/heavy construction. The segments have unique market characteristics and are subject to cyclical economic forces, though in somewhat differing ways. Commercial and residential construction have been hard hit by the severe contraction in private-sector financing and building activity that began in 2006. While public works spending has been steadier, it may come under pressure as state and local governments pare outlays to reduce budget deficits.

Public spending has accounted for an increasing share of U.S. construction activity since 2007, due to the slowdown in private-sector construction as well as a substantial increase in government infrastructure aid. Government-funded projects made up about 40% of U.S. construction activity in 2010, compared to about 20% in 2006. While state and local governments provided the bulk of these dollars, federal construction spending has risen to a record, due in part to the 2009 economic stimulus legislation, the American Recovery and Reinvestment Act (ARRA; P.L. 111- 5). Faced with a downbeat outlook, and with stimulus funding winding down, representatives of the various construction segments have asked the 112
th Congress to approve additional initiatives to bolster the industry, including an infrastructure bank to finance long-term projects and financial incentives to make commercial buildings more energy-efficient.

Date of Report: May 3, 2011
Number of Pages: 19
Order Number: R41806
Price: $29.95

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