January’s 1.7% fall in construction spending was accompanied by revisions for December and November totaling 2.0%.

Construction spending declined 8.6% over the last 22 months with more than a third of the decline in the last two months. Since September, Public construction spending is unchanged, residential construction spending has declined 10.4% while private nonresidential construction spending continues to expand.  But it has grown only 1.8% since September, far below the 1.5%/month pace maintained for more than a year.

Public construction is being restrained both by depleted highway trust funds and by a sharp turnabout to slower growth in tax receipts.  Both of these constraints will worsen so public construction spending will decline in the early part of 2008.

The residential construction spending decline accelerated when homebuilders were forced to make yet another cut in their production schedules late last year to adjust to unexpectedly low sales levels. Recent permit and starts reports suggest further decline in the next few months but at a slower pace.

The growth in private nonresidential construction spending has slowed quickly as developers slow or delay projects to avoid depressing rental rates.  Spending measured after inflation appears to be at the peak for this building cycle although small gains in nominal spending will likely continue.

Reed Construction Data has cut the forecast for 2008 construction spending to -0.9% with declines early in the year not fully offset by housing driven recovery later in the year. the full details of the new forecast will be posted in a few days.

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