Tuesday, June 1, 2010

Construction spending stops declining

Construction spending in April rose a bit, and exceeded expectations. The two-month-long rise in nonresidential spending is a welcome relief, but it's too early to say it has turned up definitively. In contrast, residential construction does appear to have bottomed. To be sure, the rebound has not been very impressive, with spending up only 5% over the past year. But in the case of residential construction, which has been the hardest-hit sector in the economy, it's great news that activity hasn't deteriorated for the past 14 months. That's one more sign that the housing market has bottomed and should begin expanding over the next year. I think it's now safe to say that residential construction is very unlikely to be a drag on the economy in the future, since it has fallen to a record low 2.4% of GDP. The question going forward is how much it will contribute.

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