Monday, February 2, 2009

Construction spending update

December figures for construction released today show continued declines in residential construction spending—not surprisingly, given all the bad news we've already seen from December—and a continued slowing the in rate of nonresidential spending. Residential construction is now at its lowest level (3.1%) relative to the economy in recorded history. Over the course of this year I would expect to see a bottoming in residential construction, followed by some modest gains by year-end. Nonresidential construction activity is likely to turn down as residential turns up. Neither will provide much support for the overall economy this year, however. On the bright side, though, we are seeing some significant declines in construction costs (contractors cutting prices in order to avoid going out of business) which could help slow the rate of decline in total construction spending.

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