The small June rise in construction spending is off trend. Expect a 4% decline by the end of the year on top of the 10% fall in the last year and the 20% drop since March 2006. the gains in the residential market will not bed enough to offset declines in the nonresidential market.

Much of the recent strength in housing has been the temporary boost from new home sales tax credits and a questionable reported rise in remodeling spending. Housing spending will continue to rise but the pace will be modest.

Offsetting the residential gains, the decline is accelerating in nonresidential markets. Spending at institutional building sites rose through June but is expected to dip later in 2009. Heavy construction spending has been stalled for three quarters but a mild dip is expected for the balance of the year driven by unresolved problems with highway funding and a sharp drop in power project starts. The freefall in commercial building has ended — a 23% decline over the last year — but month to month changes will average negative for the balance of 2009.

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.