Total construction spending fell for the fifth consecutive month in February to 4.0% below last September and 8.5% below the peak level in February 2006. Contractors laid off 51,000 workers in March but total hours worked at job sites increased 0.5% so March construction spending may tick up slightly. Nonetheless, one or two more months of decline are likely until the end of the housing collapse permits total spending to resume rising.

Construction spending is forecast to decline 0.7% in 2008, about a 4-5% volume decline after adjusting for rising project costs. A 9.3% gain is expected in 2009 which represents a 4-5% volume increase. The forecast assumes that the spending restraint on the core housing market and nonresidential projects from the recapitalization of banks and other lender after the subprime mortgage market collapse continue to taper off and become very small by yearend. The forecast also assumes that GDP growth resumes this summer at a subpar 2.5% pace with growth rising to near 3% in 2009.

It is not yet certain that the recession will be this short and brief. Most of the risk to the forecast is on the downside. If consumer confidence is not rising from the March near record low level by spring, the recession will extend longer and construction spending will drop 3% or more in 2008.

U.S. Total Construction Spending
(billions of U.S. current dollars — annual figures)

*Residential Improvements include remodeling, renovation and replacement work.
Actuals: U.S. Census Bureau, Department of Commerce.
Forecasts and table: Reed Construction Data.