by Calculated Risk on 2/05/2008 12:18:00 PM

From Jeffrey M. Lacker,President, Federal Reserve Bank of Richmond: The Economic Outlook for 2008

A particularly dramatic change is likely to occur in commercial construction, which is a key segment of business investment. Construction spending for new stores and offices grew by a healthy 10 percent after inflation last year, but we have heard reports from our District contacts of a significant softening of conditions lately, with major projects being deferred or cancelled outright. In addition, vacancy rates for retail space have increased over the last year, which should lead to less construction going forward. The most recent investment data we have are for December, and those reports indicate continued growth in construction activity and new orders for business equipment.
emphasis added

As Lacker notes, the December data for non-residential construction was still solid. Please allow me to repeat a couple of recent graphs to add to Lacker's point.

Click on graph for larger image.

This graph shows private residential and nonresidential construction spending since 1993 through December 2007.

Over the last couple of years, as residential spending has declined, nonresidential has been very strong.

As Lacker noted, as of December, a slowdown in nonresidential spending still hasn't shown up in the construction spending numbers.

But the second graph suggests Lacker's "dramatic change" in CRE investment is imminent.

This graph compares investment in non-residential structure with the Fed's loan survey results for lending standards (inverted) and CRE loan demand.

Based on Lacker's comments, it sounds like the CRE slump has arrived.