Construction forecast

The outlook for construction spending weakened slightly since last month for the end of 2007 and the early part of 2008 due to a second round of tightening of credit approval standards and increases in commercial mortgage rates, according to Reed Construction Data. Some spending will be lost and some will be pushed out until later next year or into 2009. Reed Construction Data (RCD) expects total construction spending, including project cost increases, to increase about 0.5% in the final quarter of 2007, with a 2.2% decline for the full year. Then the spending pace gradually picks up to yield a 5.7% rise in 2008 and a 10.4% gain in 2009.

Residential
New residential construction spending will decline through year end, possibly into early 2008 and then begin a slow recovery from the 35% drop over the past two years. Half of the decline in dollar value and about 40% of the decline in housing starts will be recovered by 2009, which still leaves the housing market in a depressed state for contractors and their suppliers.

Non-residential Building
Non-residential construction spending has grown 55% since January 2004 with a further 20% expansion projected by the end of 2009. Market growth that peaked at an 18% annual rate from spring, 2006 through spring, 2007 has now slipped to 13% in the second half of 2007 and will progressively slow to about 6% by the end of 2009. The slowdown in spending is matched by slower growth in new project starts reported by Reed Construction Data.

Heavy/Engineering Construction
Heavy/engineering construction spending will continue to grow in 2008 to 2009 at the same 12% pace recorded in 2006 to 2007. This expansion is weaker than for non-residential building. The growth in nominal dollars is smaller and project cost inflation is much higher because so much of the material used at job sites is priced in extremely strong world commodity markets. The relatively slower expansion is also partly due to the slim growth in both federal and state highway trust funds that rely on fuel taxes at a fixed rate per gallon. Inflation does not boost these tax receipts as it does for commercial building rental rates. Your comment?
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