Construction spending outlook weakens
Jim Haughey
 |
Seed Newsvine |
Total construction spending fell 0.4% in May after it was revised up to steady in April. The May total was 10.5% below the peak level in February 2006 but only 0.5% of the decline happened in 2008. The four consecutive upward revisions to previous months suggest that the end of the decline is near.
Contractors laid off 41,000 workers in May but extended work schedules so that total hours worked at job sites dropped only 0.2%, suggesting a slimmer decline in construction spending will be reported for June. Then a slow upturn is expected, fueled by the end of the housing recession at the job site and consumer tax rebates.
CAUTION: May data included the once a year revisions to construction spending for the last few years. Most of the changes were minor. However, there were two significant changes.
First, the residential remodeling data no longer includes remodeling spending on private vacant, seasonal and rental housing. This is about $50 billion per year. This was dropped because the Census bureau recognized that their estimates were not reliable. However this does make the construction spending estimates less useful for tracking and projecting the demand for construction materials and services.
Second, the annual revisions raised total construction spending, excluding residential, 2.8% in April 2008. Three sectors were significantly raised: power was increased 16.3%, manufacturing was increased 16.2% and retail and other commercial was increased 5.3%. Overall, heavy construction was increased 3.2%, commercial buildings 2.1%. Spending was essentially unchanged for institutional buildings. These upward revisions come from both raising jobsite costs to reflect material cost increases since projects began and corrections for missed projects when the initial sample of projects to track was drawn.
Construction spending is forecast to decline 3.9% in 2008, about a 10% volume decline after adjusting for rising project costs. A 6.7% gain is expected in 2009 which represents little change in construction activity after project cost inflation. The grimmer outlook for construction spending is not yet reflected in monthly jobsite spending reports but is clear in the monthly reports of the value of construction starts. Even though starts have improved more than seasonally in May and June, monthly starts totals are down 17.5% year to date compared to January-June last year.
The worsened outlook is due to the continued rapid increases in commodity prices. Via gas pump signs, this is keeping consumer spending confidence at a deep recession level. This supplemented by the Freddie Mac/Fannie Mae solvency concerns which makes construction financing less available and more expensive. The housing recovery is being delayed again.
U.S. Total Construction Spending
(billions of U.S. current dollars)
| Actual | Forecast | |||||
| 2003 | 2005 | 2006 | 2007 | 2008 | 2009 | |
| New Residential (% change | 350.1 | 485.0 | 476.9 | 361.3 | 252.8 | 276.4 |
| is year vs previous year) | 15.3% | 15.1% | -1.7% | -24.2% | -30.0% | 9.3% |
| Residential Improvements* | 100.1 | 131.1 | 145.9 | 140.6 | 137.2 | 146.8 |
| 2.5% | 13.4% | 11.2% | -3.6% | -2.4% | 7.0% | |
| Non-residential Building | 269.3 | 303.2 | 342.1 | 402.3 | 444.8 | 468.8 |
| -2.3% | 7.0% | 12.8% | 17.6% | 10.6% | 5.4% | |
| Non-building | 171.0 | 181.4 | 205.0 | 231.3 | 256.4 | 272.8 |
| (heavy engineering) | -0.3% | 5.4% | 13.0% | 12.8% | 10.9% | 6.4% |
| Total | 890.5 | 1100.8 | 1169.8 | 1135.4 | 1091.1 | 1164.8 |
| 5.0% | 10.9% | 6.3% | -2.9% | -3.9% | 6.8% | |
*Residential Improvements include remodeling, renovation and replacement work.
Actuals: U.S. Census Bureau, Department of Commerce.
Forecasts and table: Reed Construction Data.
