by Calculated Risk on 9/11/2006 03:50:00 PM

Federal Reserve Bank of St. Louis President William Poole spoke today in Boston. Here is his speech: The Monetary Policy Model

Bloomberg reports on the Q&A: Fed's Poole Says Construction Supporting U.S. Economy

Federal Reserve Bank of St. Louis President William Poole said the U.S. economy is ``robust'' as commercial construction picks up slack from a slowing housing market that may otherwise threaten the expansion.

"I have emphasized the strength of business construction, which is going gangbusters in many parts of the country," Poole told reporters after a speech in Boston today. "The economy is really not fragile. It's robust."
...
"It tells you something about the plans in the corporate world, the confidence in the future," said Poole, who hasn't been a voting member of the rate-setting Federal Open Market Committee this year. "You don't start those projects if you think the economy is going to tank next year."

Such investment doesn't necessarily preclude "a weak quarter or two," Poole told reporters at the National Association for Business Economics event.

Click on graph for larger image.
Source: Census Bureau, Construction Spending

This graph shows the Year over Year percent change in residential and non-residential private construction spending. Poole is correct that private non-residential construction spending has recently picked up.

Washington DC builder, dc1000 has noted the pickup in non-residential construction spending in the comments to previous posts.

The second graph shows residential and non-residential private construction spending in nominal dollars.

First, residential spending is far larger than nonresidential spending, so it is difficult for non-residential spending to pick up more than a small portion of the slack from the decrease in residential spending.

Second, historically non-residential investment has followed residential investment - so it is very likely that non-residential investment will also start declining soon.

Needless to say, I disagree with Dr. Poole's view.