Construction starts fell only 1.5% in September from August after adjusting for the large seasonal decline typical at the end of the summer. This is consistent with the Reed Construction Data forecast that starts will slip very slowly lower into the winter and that construction spending will dip slightly more by year-end.

After seasonal adjustment, non-residential building starts fell 1% in September from August, heavy project starts fell 17% and residential starts rose 22%. The residential gain was mostly for single-family construction. The housing recovery will continue at a more modest pace for the rest of the year. The large drop in the heavy market was largely sharp cutbacks after an August surge in the stimulus funded highway and water markets. Stimulus funded starts are expected to peak soon. But expect a rebound in the relatively low September starts totals before the peak is reached.

September non-residential results are the closest to the expected trend in late 2010. The decline was held to 1% by a 16% seasonally adjusted surge in retail starts which is likely to be reversed in the coming months. However, retail will be the first commercial market to recover because the recession began early in this market.

The economic environment is clearly improving for residential construction with massive federal pump priming, most of it directed to housing or consumer income support. It is not yet known if Congress will continue these subsidies into 2010 in the face of a $1.4 trillion budget deficit. If not, the economic environment for housing will worsen sharply. But the environment continues to worsen in non-residential markets.

The environment will be approximately steady in public non-residential markets with the spending of delayed building stimulus funds offset by cutbacks in state and local government capital spending forced by under-budget tax collections. The environment will continue to decline in private non-residential markets due to large and still rising space surpluses in commercial markets and near record high overcapacity in facility markets, especially in the energy field.

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