The recession had a delayed start, as always, for nonresidential buildings and heavy construction and will similarly end later.  Public project funding is now being hit hard by soaring state and local government budget deficits.  Except for highways, this will not be fully offset by the extra stimulus funds. Commercial development and mortgage credit is progressively tightening with the default rate recently jumping from under 1% to over 5% and headed higher. This will stall many planned commercial projects and cancel some.  The new FRB lending program to support commercial mortgages is off to a very slow start because many investment managers are concerned about partnering with the federal government after observing their treatment of the TARP banks and the auto industry bondholders.

The only good news for the next few months is in new housing.  Permits, starts, sales and prices appear to be stabilizing in the spring.  However, homebuilders are too financially weak to react immediately so they will continue to reduce jobsite spending into the summer. The imminent revival of new home construction does not extend to home remodeling which will continue to slip lower well into next year until the unemployment rate begins to fall. The Census Bureau reports remodeling is now 44% of residential construction but it is well over 50% after adding in the excluded spending for multi family remodeling and homeowner DIY spending. Overall, construction spending is forecast to drop 12% in 2009 and rebound 3% next year. From the latest spending data (March), total construction spending will drop 5% more by the end of 2009.  This is about a 6-7% volume decline after allowing for project cost inflation which is now resuming after six months of falling costs.  Excluding housing, the volume decline through the end of 2009 will be about 8%.

The production of construction supplies in the US has dropped 27% in the last three years with a further 5% drop expected in the next year. The prospective decline is small relative to the parallel drop in construction spending because materials manufacturers are now operating below current demand to work off surplus inventories. Similarly, construction equipment sales have fallen 40% in the last three years with a further 15% fall expected through next spring.  This is a grimmer outlook than for materials manufacturers because a large share of equipment is exported to countries where the recession is worse than it is here.

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11/06 - Contractors cut 62,000 more jobs in October, mostly for nonresidential building work

11/03 - Federal highway funding still “temporary”

11/02 - Housing gets another boost from Washington

10/30 - Initial jump in GDP growth will ebb

10/29 - Two cities illustrate divergence in regional economic growth

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