Construction spending was unchanged in August but the credit crunch has abruptly altered the trend. We now expect a decline in nominal spending totals into the winter, followed by several quarters of small nominal increases but continued real, after inflation, volume declines and then a delayed recovery beginning slowly late next year and strengthening in 2010.

Already the credit shortage has delayed or cancelled enough financially marginal building projects to further delay the housing recovery and aggravate the slowdown in nonresidential spending that had been underway due to weaker economy before the credit crunch. Most projects can still get the credit they need, albeit at higher cost. But the loss of only a few percent of planned projects is enough to push out the expected recovery of real construction spending by at least two quarters.

The negative impact on construction activity from the further slowing of overall economic spending post-crunch could be larger than the direct impact from the credit markets. Every project now looks less profitable to lenders when consumer and business spending confidence and spending power has fallen.

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.