Reed Construction Data

Construction Spending Will Plunge If Weak GDP Outlook Is Correct

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Which outlook is correct has significant consequences for construction starts and spending and construction material and equipment sales because the lower GDP growth forecasts typically include a delay in the housing recovery until next year and a sharp decline in nonresidential construction spending.

Indeed, the forecasted drop in demand for buildings and facilities plays a major role in keeping the economy on the brink of a recession well into next year. The projected further decline in construction activity stems from assumptions that construction financing access and cost will worsen slightly and the worldwide commodity price surge will continue into at least late 2008, keeping both business and consumer confidence at a recession level.

By contrast, the more optimistic GDP forecasts, do not expect either significantly worsened financial conditions or the persistence beyond the summer of very rapidly rising prices for oil and other commodities. The permits some recovery later this year in spending confidence and also permits the FRB to delay higher interest rates until well into next year.

The Reed Construction Data construction forecast is based on a GDP outlook that clearly is in the optimistic camp. For the detailed forecast, see here:
http://www.reedconstructiondata.com/news/2008/07/construction-spending-outlook-weakens

You can get an early warning of which path construction will take over the next 18 months by watching gasoline pump price signs and the monthly reports on the value of construction starts which have been improving sort several months. For the details, see here:
http://www.reedconstructiondata.com/news/2008/07/construction-starts-rise-in-june

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