Construction spending declined 1.4% in December from a downward revised November total. Current spending is 3.4% below a year ago and projected to decline 5-6% more by the end of the summer. Lower residential spending accounts for all the 11% decline since early 2006 but will contribute only one-third of the further decline in the next three quarters. Most of the projected spending decline in 2009 will be in nonresidential construction. The building boom in nonresidential buildings and civil projects ended last summer with steady monthly spending since then. Ahead, both sectors will be declining through the summer, perhaps into the fall. The late 2008 slowdown in new construction starts reported by Reed Construction Data means that the value of projects starts will not fully replace the value of projects completed in 2009.

The monthly construction spending reports have to be interpreted in the context of deflation rather than the usual inflation in project costs. Construction material prices fell 2.5% and 7.8% in the last quarter. Labor cost increases weakened substantially in the last few months and off-site project cost increases may have stopped growing due to shrinking contractor margins.

The forecast includes about $12 billion in 2009 from the infrastructure stimulus legislation now being debated in Congress. This is much less than the amount promised in headlines due to leakage to off-site costs, expected delay in enacting the plan and later delays in implementing the plan. There is considerable upside potential in 2010 if the infrastructure program proceeds anywhere near as quickly as advertised.

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.