Total construction spending fell 0.4% in June after it was revised up 0.4% to steady in May. The June total was 10.8% below the peak level in February 2006 but only 0.8% of the decline happened in 2008. The recent upward revisions to previous months suggest that the end of the decline is near.

Contractors laid off 22,000 workers in July suggesting another decline in construction spending will be reported for July. But July layoffs were the lowest in nine months due to reduced layoffs by residential builders and net hiring, perhaps temporary, by nonresidential builders. Subcontractors continue to make most of the layoffs. The pattern here suggests that slipping profits and real personal income may be causing deferrals or cancellations of both consumer and business maintenance work.

Construction spending, including project cost inflation, was essentially unchanged in the spring quarter after declining for two years. It is anticipated to expand at a 3-4% annual pace in the second half of the year, a little short of the expected rise in construction costs.

The growth in construction spending will rise to 7% early next year, a little above the expected gains in project costs. By the end of next year, spending, after inflation will be rising at a 3-4% annual pace.

The price trend underlying the construction forecast is extremely volatile. Construction materials cost increased only 3.4% in 2007, jumped over 9% in the first half of 2008 but will rise closer to the 2007 pace over the next year now that the world commodity price surge has begun to reverse.

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%	9.4%
Residential Improvements*	100.1	131.1	145.9	140.6	137.1	146.8
	2.5%	13.4%	11.2%	-3.6%	-2.4%	7.0%
Non-residential Building	269.3	303.2	342.0	402.2	445.9	469.6
	-2.3%	7.0%	12.8%	17.6%	10.8%	5.3%
Non-building	171.0	181.4	205.0	231.3	255.6	272.3
(heavy engineering)	-0.3%	5.4%	13.0%	12.8%	10.6%	6.5%
Total	890.5	1100.8	1169.8	1135.3	1091.4	1165.1
	5.0%	10.9%	6.3%	-2.9%	-3.9%	6.7%

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