Friday, July 1, 2011

Construction still weak


Construction spending in May continued to slide slowly downhill, though there are signs that the residential market may be hitting bottom. Regardless, with construction spending now only about 2% of GDP, whatever weakness remains in this sector has become almost irrelevant for the overall economy. But an eventual recovery in this sector would be significant.

5 comments:

Benjamin said...

This is like when your star player is hitting .121. Sure he likely won't get worse--but it would be nice if he started to connect.

brodero said...

Resi investment will likely hit
3.5% in a couple of years...

Bill said...

Yes, since we've been below trend about $1.7 trillion for the past couple of years, I would expecte quite a boom at some point. Now, if those of us tied to the industry can only hang on long enough to see the upturn...

Kurt said...

"With construction spending now only about 2% of GDP, whatever weakness remains in this sector has become almost irrelevant for the overall economy."

Scott, do you mean to say that further declines in construction activity will not do very much to dampen the economy, still leaving the possibility that increases in construction could significantly boost the economy?

Scott Grannis said...

Kurt: yes. If residential construction declines more it will have a minimal impact on GDP. But once it starts picking up, there is lots of upside and that would be very good news for GDP. Conclusion: minimal downside, major upside potential. Even if we're not at the exact bottom now, it doesn't really matter; it's better to be bullish on residential construction rather than bearish.