The monthly drop in December from November was 0.9% with institutional spending up 0.4% and “for lease” spending off 0.5%. Manufacturing spending, heavily energy driven, was down 4.9%. Manufacturing is very volatile month to month so no trend should be inferred from the deep December decline although further, more modest, declines are expected. President Obama FY ’11 budget, beginning in nine months calls for a marginal drop in federal building construction funds plus a huge $5.2B cut in Defense Dept. military base realignment spending. This will be a restraint on institutional construction spending in 2011-12. Congress is not now inclined to appropriate more than Obama requests although there is a considerable possibility that Congress will favor more public works construction and less funds for income support than the President requested.

“For lease” construction spending will continue to fall slowly until late in 2010. Building occupancy and rental rates are still weakening. In spite of the sharp cutback in space completions, the space supply is still rising slightly as previously started projects are completed and space demand is still shrinking as it usually does for 4-5 quarters after the overall economy begins expanding. Note that starts of for lease buildings have been trending up since the cyclical low point last June and will increase the amount of work under construction later this year.

The full impact of the recession is not hitting state and local government construction after a prolonged period of much reduced tax collection. State budgets now being proposed for the FY beginning in five months generally include cutbacks on building construction in order to maintain public employment. The most financially sound states will begin to reverse these cutbacks a year ahead but many states will not be able to boost public building funds in FY ’12.