Construction spending for nonresidential buildings and heavy projects stalled in December after rising strongly for more than three years. February spending was 1.3% below November and up only 0.1% from January. The stall resulted partly from financing problems for commercial buildings that spilled over from the residential market. Construction spending for commercial buildings is 3.6% below the fall 2007 peak level. But the stall in spending is now being driven primarily by the economy-wide recession that stemmed from the residential mortgage problems.

A few more months of steady or declining construction spending is expected. The period of decline may be longer for commercial buildings. Then rising spending will resume at about a 7% annual pace for nonresidential buildings and 9-10% for heavy projects. The forecast represents very modest real growth after inflation, nor quite keeping pace with overall growth in the economy.

Commercial developers are slowing some ongoing projects and delaying some new project starts until they are more certain that they can lease them for an acceptable rate of return. No significant drop in construction activity is expected because the commercial market is not overbuilt as it was at the onset of recent recessions. A short, shallow recession will not prevent resumed growth later this year.

The institutional building market is stalled at the September 2007 level as the result of very cautious spending budgets adopted by most states for the current fiscal year after three years of booming public spending growth. The budgets are too grim for the recession scenario in the forecast so some relaxation of spending restraints in expected this spring.

Spending in the heavy construction market is also stalled at the September 2007 level. this is a combination of shortages in many highway trust funds, and a cut back on power facility construction in anticipation of slower expansion of electricity demand during the recession period. Tighter public budgets and the end to more than three years of rising corporate profits also contribute to the stall.

U.S. Non-building (Heavy Engineering) Construction
(billions of U.S. current dollars)

* Monthly figures are seasonally adjusted at annual rates (SAAR figures).
The total includes some miscellaneous buildings.
Actuals: U.S. Census Bureau, Department of Commerce (put-in-place investment figures).
Forecasts and table: Reed Research Group.

U.S. Nonresidential Construction
(billions of U.S. current dollars)

* Monthly figures are seasonally adjusted at annual rates (SAAR figures).
The total includes some miscellaneous state and local government buildings.
Actuals: U.S. Census Bureau (Department of Commerce) (put-in-place investment figures).
Forecasts and table: Reed Construction Data.