Total construction spending fell 0.4% in April after it was revised up 0.6% in March and remains 8.4% below the peak level in February 2006. Almost half of the decline occurred since last September when residential mortgage problems began to slow growth in nonresidential construction markets. The three consecutive upward revisions to previous months suggest that the end of the decline is near.

Contractors laid off 61,000 workers in April and cut work schedules so that total hours worked at job sites dropped 1.5%, assuring another decline in construction spending will be reported for May and possibly June. Then a slow upturn is expected fueled by the end of the housing recession at the job site and consumer tax rebates.

Construction spending is forecast to decline 1.1% in 2008, about a 4-5% volume decline after adjusting for rising project costs. A 9.9% 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 2.0% pace with growth rising to near 3% late 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 late 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)

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

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