We all know the harsh reality of the tough economy we are in. We are dealing with a recession that no one can foresee ending at this point. This morning we got another hint at how bad things are with the release of 2008 construction figures, which showed construction spending in 2008 fell by a new record amount.The Commerce Department released December construction figures today, which showed spending in December fell for the third month in a row, with a reported 1.4% decline during the month. This was a bit worse than the revised 1.2% decline that analysts had been expecting to see for the month. Previously, the November figure was showing a drop in spending of only 0.6%.
With December's figures now in, we get the full picture of 2008, which saw a total decrease in construction spending of 5.1%. Last year's decline surpassed what we saw in 2007, a year in which construction spending fell by 2.6%.
As you probably figured, the main culprit in last years decline was home destruction. As the credit crunch and foreclosure mess hit the housing market at full force, residential construction dropped significantly last year, posting a decline of 27.2% during the year. At that rate, last year was the worst year on record for home construction spending all the way back to 1993.
Taking a closer look at home construction, we see that residential construction accounted for just 34% of total construction spending in 2008. This was down from a 44% share in 2007.
Non-residential construction was also lower last month, falling by 0.4%. This also marks the third straight month of declines, but overall, non-residential construction was actually up on the year. According to today's report, non-residential construction spending rose by 15.3%. This is the third year in a row where growth was in the double digits. Despite this three year trend, 2009 could prove to be more difficult for this sector as well, as financial institutions continue to tighten up on their lending.
For now, there still seems to be no end in sight for the current recession, and unless things start to turn over the next few months, 2009 could be on path for an even worse year than we saw in 2008. Let's hope that is not the case.
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Reader Comments (Page 1 of 1)
2-02-2009 @ 2:51PM
BHarrison said...
Uhhhh . . . how about a little "common sense" in all of this.
With a surplus inventory of houses, condominiums, and commercial space/ buildings; and a declining sales and rental rates for those inventories, even if the loans WERE readily available for new construction, where is the incentive (profit-wise) to build more buildings.
The FIs and the Developers have simply flooded the market with asubstantial oversupply of homes and buildings that will take time to be "absorbed", right?
If the vast majority of Americans were able to buy two or three years supply of grocercies at substantially reduced prices, then the sales at grocery stores would substantially deminish, right? And the farmers wouldn't be able to sell the crops that they grow; and they would basically go bankrupt. That is somewhat what has happened to the construction industry.
It is a basic concept and principle of supply and demand . . . and we simply have too great of a supply that is being discounted price-wise on a monthly basis. Therre is no significant market for new construction that will provide reasonable RoI for the developers or the construction companies.
Master Planned Communities and Condominiums require the selling of large numbers of units in order for the projects to be viable. That simply is not possible in today's market. The large projects are dead; they simply are not viable at this time. Who would want to live in a housing development that takes a decade or longer to complete . . . that would be a nightmare.
The CORRUPT and greedy FIs simply enabled the construction industry to produce an enormous glut of overpriced surplus inventory that will take several, if not many years to be sold.
The construction industry will be a "shadow" of what it was previously for at least a decade.
The American people just don't seem to understand the full impact of the long term impact of the damage that has been done. Our nation is not going to be able to recover from all of this damage in just a couple of years . . . we are in for a decade or more of hard economic times.
So, when you vote for your politicians, esp. Congressmen, just remember that Congress was the PRIMMARY CULPRIT in having allowed and enabled all of those FRAUDS and irresponsible actions to occur. If Congress had passed and implemented reasonable and prudent REGULATIONS, and effective oversight, NONE of these economic debacles would have occurred. Thanks to Congressmen such as Barney Frank (D-MA), Mel Martinez (R-FL), Ms Pelosie, Mr. Reid, Mr. Dodd, etc., all of that corruption was allowed and enabled.
Now, these INEPT, INCOMPETENT, and/or CORRUPT Congressmen are passing themselves off as the "leaders' of the recovery against the debacles that they enabled . . . what a sham.