Wednesday, September 1, 2010

Construction spending remains weak


Residential construction spending slipped a bit in July, but since it only represents less than 2.5% of GDP, that's a drop in the bucket. Nonresidential spending also slipped, but I don't know anyone who expected it to strengthen; there's still plenty of idle capacity out there. Construction remains the weakest sector in the economy, but it no longer poses a serious threat to the overall GDP growth. The economy has been very busy in recent years shifting massive amounts of resources away from construction and into other sectors. This is a major rotation effort that will probably require a bit more time to be complete.
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5 comments:

  1. Benjamin ColeSeptember 1, 2010 at 10:36 AM

    Real estate is in a depression. Real estate is often the largest asset of a family or small business--and the only collateral accepted by banks when extending loans.

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  2. BillSeptember 1, 2010 at 1:39 PM

    Scott,

    Check out the story in Bloomberg today suggesting that capitalization rates are coming down, suggesting a buy signal for commercial properties. The article also suggested that the low yields on treasuries are making real estate look more attractive. I know our commercial real estate lawyers are seeing an uptick in transactions for good quality properties. I have also heard from some commercial contractors that the volume of new contracts is picking up as well. It will be quite some time before a healthy rebound, but I think it will come eventually. Perhaps it will be "heaven in '11."

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  3. Scott GrannisSeptember 1, 2010 at 2:05 PM

    The article Bill references is good and can be found here:

    http://www.bloomberg.com/news/2010-09-01/real-estate-premium-to-u-s-bonds-signal-time-to-buy-property.html

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  4. Benjamin ColeSeptember 1, 2010 at 3:57 PM

    Well, I have been hoping an' hoping an' hoping that real estate and stocks would pick up with low interest rates. Still hoping....

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  5. JohnSeptember 2, 2010 at 7:46 AM

    Pending home sales up 5.2% this AM. Yet another data point suggesting housing is forming a bottom. Its going to be a long slog and recovery will likely be gradual with a few potholes along the way but perhaps this sector will not be the drag its been in the past.

    Bill,

    Good article. Thanks for pointing it out.

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