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Steep plunge in construction spending will continue through April

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Construction spending fell an average of 2.5% in each of the last four months and is likely to decline at about the same pace in March and April. Another large decline in construction spending will be reported for March based on today’s jobs report for March. Contractors laid off 126,000 workers between mid-February and mid-March. Then yet another large decline in construction spending will be reported for April. The April jobs survey will take place next week and will find another 100,000 or so fewer construction workers based on recent weekly claims for unemployment benefits.

The construction spending reports through April are “pre-stimulus”. This means no significant impact from the $787B stimulus funds nor from the related programs to subsidize home purchases and mortgage payments and to reduce borrowing costs and provide more lendable funds. The first significant stimulus impact will be as early as May. This will be very small but will get progressively larger over the next year as more stimulus funded projects begin construction.

Reed Construction Data does not expect monthly gains in construction spending to resume until yearend. Late in the year this will result from the cumulative impact of the stimulus spending, significant price cuts throughout the economy and the turn of the manufacturing and distribution inventory cycle from reduction to accumulation.

Resumed expansion in construction spending will occur first in consumer driven sectors, such as housing and retail and last in capital goods driven sectors such as power and manufacturing.

by Jim Haughey

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