But budget cuts seems to have taken their toll on public construction spending over the past two years, as spending in the sector has fallen even while private-sector construction has rebounded, as this chart from the St. Louis Federal Reserve makes clear. As a result, total construction spending — and the housing recovery as a whole — isn’t as robust as it could have been without the cuts.
The bleeding has stopped over the past year as state and local government budgets have slowly begun to recover. But even with the recent improvement, there still isn’t growth: The change in overall spending on public construction remained essentially unchanged between December 2010 and December 2011.
President Obama’s American Jobs Act proposed spending $25 billion to modernize public schools, which would give public construction a big boost and create jobs. But given the political constraints, any more government support for construction and housing is likely to be more indirect.