Construction spending fell 1.2 percent in December according to figures released by the Commerce Department last week. IHS Global Insight, Lexington, Mass., said construction spending in December was weak across the board, but also suggested excluding residential improvement in evaluating the report because the category is badly estimated and not itemized. Excluding improvements, construction spending in December fell 0.4 percent.

IHS Global Insight compiles data for the State of the Equipment Rental Industry Outlook 2009-2014 Market Monitor service the American Rental Association (ARA) and Rental Management offers to ARA members on a subscription-only basis.

Patrick Newport, IHS Global Insight’s U.S. economist, said the December construction spending report sheds further light on a number of ongoing trends. “A key one is the profile for single-family home construction, which in June 2009 increased for the first time in 40 months, posted solid gains for a few months, but has now slowed. The estimate for this category is based on a weighted average of single-family housing starts, which have been improving since January 2009. The gains, however, have slowed recently — probably because the tax credit for first-time homebuyers shifted the timing of housing starts from the second half of 2009 into the first half. Going forward, single-family starts should continue to improve because inventories of new homes have fallen to their lowest level since 1972 and will require restocking, and because the household formation rate will increase as the economy starts adding jobs,” he said.

Single-family permits, Newport said, increased 4.45 percent in November and 7.7 percent in December, a sign that single-family starts are likely to improve in early 2010.

“The second development is the collapse in the market for multi-family homes,” Newport said, explaining that tight credit and overbuilding has brought multi-family housing construction nearly to a halt as it is down 44.7 percent from last year.

A worsening downturn in private nonresidential construction is the third development, Newport said. “Although spending inched up 0.2 percent, most private nonresidential categories continue to drop at double-digit, year-on-year rates.”

However, he said the biggest disappointment in the December report is public construction, which posted solid gains during the first half of 2009, but fell for the fifth straight month in December. “In recent months, spending on educational buildings and highways and streets have accounted for nearly the entire drop in public construction spending. This category should nonetheless post modest advances this year because of increased spending on infrastructure,” Newport says.