Deep spending declines begin for nonresidential building and heavy project markets

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deep spending declines begin for nonresidential building and heavy project markets

March 03, 2009 - Jim Haughey

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As expected for many months, the recession arrived in the nonresidential construction market last December although it was masked by the initial overestimates of construction spending. The recession will worsen into the spring for public construction until it is cushion by the construction spending spree in Washington and at least into the summer for private construction until it is cushioned by the massive spending spree for all federal government activities.

Since September, the value of construction starts has dropped 18% for institutional buildings, 31% for commercial buildings and 43% for manufacturing buildings. Construction spending is down only 5% over the same period for nonresidential buildings but will quickly fall much further as existing projects are finished. For lease commercial projects have shown the most decline so far. The impact of a change in the economic environment, as always, is delayed for institutional buildings.

Spending for every type of heavy project declined in January. While a substantial part of the decline may be lower project costs, especially for materials, the recent starts trends assure at least a modest decline in activity into the summer. This sector is directly targeted by the economy recovery fiscal plan so the decline will be short and small compared to the rest of construction. A small amount of the new highway funds may be spent in March although the maximum monthly spending is many months away.

U.S. Non-building (Heavy Engineering) Construction
(billions of U.S. current dollars)

	Monthly Figures* (latest actual values)		Annual Figures
	Monthly Figures* (latest actual values)		Actual			Forecast
	Dec-08	Jan-09	2006	2007	2008	2009	2010
Transportation (% change is period versus same period, previous year)	34.220	33.434	27.912	32.274	35.196	32.825	33.7
	-1.4%	-1.2%	11.8%	15.6%	9.1%	-6.7%	2.7%
Communication	22.335	20.561	22.234	26.937	24.954	20.163	21.575
	-22.3%	-25.1%	17.3%	21.2%	-7.4%	-19.2%	7.0%
Power	77.670	68.365	39.846	52.769	70.693	71.150	75.25
	34.1%	8.1%	12.5%	32.4%	34.0%	0.6%	5.8%
Highway	80.103	79.287	71.789	75.309	79.497	80.050	88.15
	3.3%	5.5%	12.2%	4.9%	5.6%	0.7%	10.1%
Water and Sewer	44.014	41.814	38.127	38.743	42.429	41.250	44.05
	15.4%	6.8%	13.1%	1.6%	9.5%	-2.8%	6.8%
Conservation & Development	5.991	4.819	5.101	5.219	5.283	5.428	5.74625
	-0.4%	-9.9%	14.4%	2.3%	1.2%	2.7%	5.9%
Total	267.140	248.280	205.008	231.251	258.051	250.865	268.471
	8.8%	1.7%	13.0%	12.8%	11.6%	-2.8%	7.0%

* Monthly figures are seasonally adjusted at annual rates (SAAR figures).
The total includes some miscellaneous buildings.
Actuals: U.S. Census Bureau, Department of Commerce (put-in-place investment figures).
Forecasts and table: Reed Research Group.

U.S. Nonresidential Construction
(billions of U.S. current dollars)

	Monthly Figures* (latest actual values)		Annual Figures
	Monthly Figures* (latest actual values)		Actual			Forecast
	Dec-08	Jan-09	2006	2007	2008	2009	2010
Lodging (% change is period versus same period, previous year)	34.084	32.464	17.984	28.602	36.696	31.425	32.888
	6.1%	-0.2%	40.1%	59.0%	28.3%	-14.4%	4.7%
Office	69.826	68.398	54.170	64.702	72.224	66.500	67.450
	2.3%	-3.8%	18.1%	19.4%	11.6%	-7.9%	1.4%
Commercial (mainly retail)	75.309	73.113	76.673	88.478	85.520	71.125	75.600
	-15.1%	-18.8%	9.1%	15.4%	-3.3%	-16.8%	6.3%
Health Care	48.533	45.985	38.489	42.904	46.380	44.600	47.675
	9.1%	5.7%	11.8%	11.5%	8.1%	-3.8%	6.9%
Education	103.512	104.110	85.081	96.085	103.943	102.450	105.450
	2.9%	3.5%	6.9%	12.9%	8.2%	-1.4%	2.9%
Religious	7.371	6.625	7.746	7.454	7.087	6.025	5.950
	2.9%	-9.1%	0.0%	-3.8%	-4.9%	-15.0%	-1.2%
Public Safety	14.477	14.233	7.800	9.869	12.572	12.863	12.038
	31.8%	21.2%	7.1%	26.5%	27.4%	2.3%	-6.4%
Amusement/Recreation	21.536	20.907	18.990	21.610	22.843	20.038	20.775
	-6.9%	-9.3%	24.4%	13.8%	5.7%	-12.3%	3.7%
Manufacturing	73.315	73.189	35.113	42.538	63.605	68.350	62.825
	42.2%	48.5%	17.0%	21.1%	49.5%	7.5%	-8.1%
Total	447.963	439.024	342.045	402.242	450.870	423.375	430.650
	4.9%	2.3%	12.8%	17.6%	12.1%	-6.1%	1.7%

* Monthly figures are seasonally adjusted at annual rates (SAAR figures).
Actuals: U.S. Census Bureau (Department of Commerce) (put-in-place investment figures).
Forecasts and table: Reed Construction Data.

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