Wednesday, July 1, 2009

Construction spending update


Residential construction was still declining in May, but it has shrunk so much relative to GDP (it's now down to about 2.5% of GDP, the lowest reading on record) that a small decline hardly matters to the overall economy at this point. Nonresidential construction activity has held up better than most (including me) expected, however. Indeed, the fact that it is up 4% from the January low is rather impressive considering all the bad news that has been out there since last September.
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10 comments:

  1. Public LibraryJuly 1, 2009 at 1:18 PM

    Your surprise comes from the government, not private investment in construction...

    "Nonresidential spending is off 3.3%on a year-over-year basis, and will turn strongly negative as projects are completed."

    http://4.bp.blogspot.com/_pMscxxELHEg/Sktv_vmgdtI/AAAAAAAAFtk/jfJ-Ez6lJYk/s1600-h/ConstructionSpendingMay09YoY.jpg

    "As I've noted before, these will probably be two key stories for late 2009: the collapse in private non-residential construction, and the probable bottom for residential construction spending. Both stories are still developing ..."

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  2. bob wrightJuly 1, 2009 at 2:50 PM

    Scott,

    Your chart is non-SAAR data?

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  3. Scott GrannisJuly 1, 2009 at 3:36 PM

    It is saar data, as indicated on the y-axis label.

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  4. alstryJuly 1, 2009 at 9:30 PM

    Scott,

    You are obviously not a player in commerical real estate....otherwise you would know commercial is crashing hard in most places in the country.

    Further, if you want to get a good perspective on commercial construction, go talk to the principals at large architecture firms....you might be shocked at the answer.

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  5. bob wrightJuly 2, 2009 at 3:03 AM

    Scott,

    This may be an imposition; if so, please say. If not, do you have any thoughts on why your chart is different from the chart on construction spending over at Calculated Risk

    Specifically, your lines cross in 2003 while the the lines in the chart at Calculated Risk do not.

    Are you and Calculated Risk charting two different data sets?

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  6. Gene PrescottJuly 2, 2009 at 5:50 AM

    Should the scale of the left and right y-axis be the same?

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  7. fwiw imhoJuly 2, 2009 at 6:12 AM

    Many years ago I was told that commercial construction (buildings) lags residential construction by two years. It's important to distinguish between commercial building construction and commercial infrastructure construction (roads, bridges, utilities, watertreatment plants etc. Commercial building construction hit the wall in Oct 08 in my area. And it never was a "hot" market. Shipments into my area are down 40% for the year and the only hope for an upturn this year will come from government funded projects. The private sector is NOT spending money.

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  8. alstryJuly 2, 2009 at 7:16 AM

    fwiw,

    You nailed it on the head. Private commercial construction will virtually shut down in the second half.

    The primary driver of commercial construction is government/utility spend. As tax receipts continue to evaporate, and utility demand slows, expect dramatic cuts in months ahead.

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  9. Scott GrannisJuly 2, 2009 at 7:44 AM

    Bob: Calculated Risk is showing only Private Construction. My chart shows Total Construction (Public and Private).

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  10. bob wrightJuly 2, 2009 at 2:01 PM

    Thanks Scott.

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