Reed Construction Data expects construction spending to drop 11% in 2009 from 2008 because of the large declines that have already occurred. Monthly jobsite construction spending will drop about 4% more by the end of 2009 and rise 8-9% from December 2009 to December 2010. This yields a 2.3% gain for the full year 2010 over 2009.

There are several significant trends in the detailed June construction report.  Spending on projects financed by private developers continued to drop sharply in response to the recent even sharper drop off in project starts, over 50% for some types of projects. The June decline in spending was 3.0% for hotels, 0.6% for private commercial properties and 7.2% for multi family housing.  This follows recent large declines in occupancy and rental rates and increased difficulty in obtaining project financing. Sizable monthly declines in developer financed construction spending are expected for the rest of the year.

The small June rise in manufacturing spending, largely energy related is likely the peak for this building cycle. A double-digit declining pace is expected soon that will persist well into next year.  Both energy demand and prices are below where they were when projects scheduled for the coming months were planned. And manufacturing capacity utilization is now at a record low level.  Although capacity use will be improving this summer, through next year it will remain well below the unusual threshold that prompts capacity expansion spending.

The small June gains in education, healthcare and other government and non-profit buildings should soon turn to small declines for 4-6 moths when the full impact hits of the worst state and local government budget position in many decades. California, New York, Illinois and Florida will be the worst hit states. States in the middle of the country plus Alaska generally will need to make fewer capital expenditure cuts.

The 2.4% pickup in single family construction spending – the first since February 2006 – was expected following recent increases in housing starts.  This likely signals the starts of a long uptrend. But the pace will be slower than in June. Spending is forecast to be about 9% higher by next June. Falling employment and home prices plus the bloated inventory of existing homes for sale will prevent a rapid recovery.

June’s 1.4% gain in residential remodeling spending is suspect. The Census Bureau is not able to accurately measure the remodeling market. Large revisions, as happened in June, are frequent. Other market measures suggest that remodeling will decline at least into early next year.

 

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