by Calculated Risk on 12/01/2008 10:00:00 AM
Monday, December 01, 2008
Construction Spending Declines in October
The Census Bureau reported this morning that private non-residential construction decreased in October with declines in both residential and non-residential spending. I expect that non-residential investment will decline sharply over the next year or two.
From the Census Bureau: September 2008 Construction at $1,060.1 Billion Annual Rate
Spending on private construction was at a seasonally adjusted annual rate of $756.5 billion, 2.0 percent (±1.1%) below the revised September estimate of $771.9 billion. Residential construction was at a seasonally adjusted annual rate of $338.8 billion in October, 3.5 percent (±1.3%) below the revised September estimate of $351.2 billion. Nonresidential construction was at a seasonally adjusted annual rate of $417.7 billion in October, 0.7 percent (±1.1%)* below the revised September estimate of $420.6 billion.

The graph shows private residential and nonresidential construction spending since 1993.
Nonresidential spending had been strong as builders completed projects, but there is substantial evidence of a slowdown - less lending for new projects, less work for architects - and it appears the expected slowdown in non-residential spending has arrived. On the graph nonresidential spending has been relatively flat for the last few months, but I expect some serious cliff diving over the next 18 months.

The second graph shows the year-over-year change for private residential and non-residential construction spending.
The YoY change in non-residential spending is starting to slow down and will probably turn negative later this year or early in 2009.
It now looks like investment in non-residential structures will negatively impact GDP in Q4. This had been one of the few bright spots for the economy.