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Nonresidential Building Construction Drops 22% Since October 2008

0 226 Market Intelligence

The monthly drop in December from November was 0.9% with institutional spending up 0.4% and “for lease” spending off 0.5%. Manufacturing spending, heavily energy driven, was down 4.9%. Manufacturing is very volatile month to month so no trend should be inferred from the deep December decline although further, more modest, declines are expected, says Reed Construction Data chief economist Jim Haughey.

The monthly drop in December from November was 0.9% with institutional spending up 0.4% and “for lease” spending off 0.5%. Manufacturing spending, heavily energy driven, was down 4.9%. Manufacturing is very volatile month to month so no trend should be inferred from the deep December decline although further, more modest, declines are expected. President Obama FY ’11 budget, beginning in nine months calls for a marginal drop in federal building construction funds plus a huge $5.2B cut in Defense Dept. military base realignment spending. This will be a restraint on institutional construction spending in 2011-12. Congress is not now inclined to appropriate more than Obama requests although there is a considerable possibility that Congress will favor more public works construction and less funds for income support than the President requested.

“For lease” construction spending will continue to fall slowly until late in 2010. Building occupancy and rental rates are still weakening. In spite of the sharp cutback in space completions, the space supply is still rising slightly as previously started projects are completed and space demand is still shrinking as it usually does for 4-5 quarters after the overall economy begins expanding. Note that starts of for lease buildings have been trending up since the cyclical low point last June and will increase the amount of work under construction later this year.

The full impact of the recession is not hitting state and local government construction after a prolonged period of much reduced tax collection. State budgets now being proposed for the FY beginning in five months generally include cutbacks on building construction in order to maintain public employment. The most financially sound states will begin to reverse these cutbacks a year ahead but many states will not be able to boost public building funds in FY ’12.

U.S. Nonresidential Construction
(billions of U.S. current dollars)

  Monthly Figures*
(latest actual values)
Annual Figures
  Actual Forecast
  Nov-09 Dec-09 2007 2008 2009 2010 2011
Lodging (% change is period versus
same period, previous year)
19.098 17.305 28.676 35.819 25.161 16.775 16.550
-46.9% -46.0% 59.5% 24.9% -29.8% -33.3% -1.3%
Office 48.389 49.177 65.195 70.078 55.983 48.225 48.400
  -30.5% -26.2% 20.4% 7.5% -20.1% -13.9% 0.4%
Commercial (mainly retail) 47.789 48.190 89.233 85.097 58.299 46.038 48.175
  -37.7% -35.0% 16.4% -4.6% -31.5% -21.0% 4.6%
Health Care 44.179 44.460 43.725 47.581 47.044 45.475 50.450
  -10.8% -9.6% 13.6% 8.8% -1.1% -3.3% 10.9%
Education 95.871 96.176 96.523 103.785 103.250 95.125 101.000
  -8.1% -5.6% 13.4% 7.5% -0.5% -7.9% 6.2%
Religious 5.944 6.107 7.541 7.130 6.407 5.977 6.182
  -18.4% -16.1% -2.6% -5.5% -10.1% -6.7% 3.4%
Public Safety 13.703 14.189 10.172 12.931 14.265 13.063 14.000
  -7.5% -2.8% 30.4% 27.1% 10.3% -8.4% 7.2%
Amusement/Recreation 16.403 15.906 21.172 21.486 18.697 15.275 17.375
  -20.1% -21.8% 11.5% 1.5% -13.0% -18.3% 13.7%
Manufacturing 66.460 63.207 45.496 61.113 75.836 61.500 59.188
  -6.4% -10.5% 29.6% 34.3% 24.1% -18.9% -3.8%
Total 357.836 354.717 407.733 445.018 404.942 347.453 361.320
  -20.5% -18.8% 19.2% 9.1% -9.0% -14.2% 4.0%

*Monthly figures are seasonally adjusted at annual rates (SAAR figures).
Actuals: U.S. Census Bureau (Department of Commerce) (put-in-place investment figures).
Forecasts and table: Reed Construction Data.

by Jim Haughey

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