The small July decline in construction spending offsets a small rise in June. Slightly larger monthly declines are expected into the winter. Expect a 3-4% decline by the end of the winter 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 be 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 then fell for the first time in this cycle in July. Monthly declines will continue into the winter. Heavy construction spending has been stalled for three quarters but a mild dip is expected well into 2010 driven by unresolved problems with highway funding and a sharp drop in power project starts.

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.