Construction spending inched up in March to an annualized rate of $808 billion, up 0.1% compared to the previous month and is now 6% above year ago levels, according to a new analysis of federal data recently released by the Associated General Contractors of America. The overall gains mask divergent trends, however, as public-sector construction activity continues to decline while private-sector demand for new construction continues to strengthen.

“Private- and public-sector demand for construction appear to be heading along two distinct directions,” said Ken Simonson, the association’s chief economist. “While it is great to see private-sector activity coming back to life, it is unfortunate to see declining public sector demand dampen the industry's overall growth.”

Simonson noted that private construction activity expanded by 11.5% between March 2011 and March 2012 and by 0.7% compared to February 2012. Nonresidential spending was particularly robust, expanding by 15.2% from March 2011 and by 0.7% compared to February 2012. He noted that the biggest private nonresidential monthly spending increases were for transportation (up 6.7% for the month) and office projects (up 5.4% for the month), while manufacturing (up 38.6% for the year) and power construction (up 22.1% for the year) experienced the largest annual increases.

The economist added that private residential spending increased by 0.7% compared to February 2012 and 7.4% compared to March 2011. New single-family construction posted a 10.3% year-over-year rise and a 3.8% increase for the month. New multifamily construction was up 23.3% from the previous March but down 3.1% from February. Spending on residential improvements moved up 2.6% year-over-year and fell 1.9% for the month.

Simonson noted that public construction spending declined 3.2% in March from a year earlier and 1.1% from March. The two largest public categories showed similar results. Highway and street construction, the largest public category, was down 0.5% year-over-year and fell 0.8% for the month. Educational spending declined by 2.7% over 12 months after dropping 1.2% from February to March.

Association officials warned that the ongoing declines in public construction spending were making it difficult to benefit from the growing private-sector construction activity. While Congress appears to finally be making progress on a long-overdue highway and transit bill, the lack of key bills, the winding down of the stimulus and the conclusion of many military base realignment projects were offsetting growth in private-sector activity.