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Construction Starts Down 3% in October After Seasonal Adjustment

0 194 Market Intelligence

October construction starts increased 6% from September, but the monthly change was a 3% drop after adjusting for the usual seasonal pickup. This is consistent with the Reed Construction Data forecast that starts will slip very slowly lower into the winter and that construction spending will dip slightly more, says Reed Construction Data chief economist Jim Haughey.

October construction starts increased 6% from September, but the monthly change was a 3% drop after adjusting for the usual seasonal pickup. This is consistent with the Reed Construction Data forecast that starts will slip very slowly lower into the winter and that construction spending will dip slightly more.

Construction starts are running at an annual rate of $406 billion in the last four months since the steep drop in June. This is marginally below the 2008 total but 25% below the peak starts in this cycle in 2005-2006.

Starts trends vary widely by sector. Residential starts are down 37% year to date from the same period last year, but are now rising again. Non-residential building starts are down 19% year to date with a further small decline expected into the winter and no significant improvement until 2011.

Heavy project starts are up 10% year to date. Miscellaneous civil projects hit a record high level in October. Starts in the last four months are 33% higher than in the same period last year. This stimulus-funded surge will subside quickly and cause heavy project starts to fall sharply over the next year.

The slower growth expected in the economy for several quarters after the initial 3.5% surge in the summer will spill over into construction. Monthly reports on starts and job-site spending are more likely to be down than up in the next six months, except for housing where progressive expansion is expected in spending.

However, construction wage rate growth will weaken further and could turn negative during this period. Materials cost will rise in spite of the lackluster growth outlook because of the increased demand by manufacturers worldwide and by foreign contractors for the same materials used in U.S. construction. Credit will continue to be adequate for good credit risks but increasingly hard to get for financially marginal borrowers, especially small companies that rely on now very troubled local and regional banks.

Download a PDF of this and more economic information here.

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by Jim Haughey

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