by Calculated Risk on 7/05/2006 02:05:00 AM

The Census Bureau reported:

"that construction spending during May 2006 was estimated at a seasonally adjusted annual rate of $1,206.2 billion, 0.4 percent (±1.4%) below the revised April estimate of $1,210.5 billion. The May figure is 6.0 percent (±2.2%) above the May 2005 estimate of $1,137.5 billion."

The following graph shows private residential construction spending for New Single Family and Improvements, seasonally adjusted and annualized since 2000:


Click on graph for larger image.

It appears construction spending peaked in Q4 2005. I expect the drop in construction spending to start showing up in the BLS employment report soon. As I noted in May, construction employment has already started to decline in California.

From Federal Reserve economist Dr. Krainer's Economic Letter last week:

"For recession-related downturns, the real price of new houses declines about four quarters after the peak, on average. Real new house prices register no detectable declines surrounding the average non-recession-related downturn."

So far the behavior of this housing downturn is similar to recession related downturns. If the similarities continue, prices will start to fall about four quarters after the peak, or late this year.

Note: I'm not arguing for a recession; I'm just saying the market behavior is similar (with Krainer's caveats) to recession related housing slowdowns.