Status and Forecast

By Jim Haughey, Director of Economics | September 28, 2010

Total Construction Spending

Total spending declined 0.9% in the first two months of the year. But the 71,000 new construction jobs in March confirm that much of this drop was weather-related. Still, construction activity is in a 6- to 9-month pause after the end of the housing boom. The brief March dip in mortgage rates will produce an early spring rebound in housing starts, then the slow downward slide resumes through next year.

Construction Equipment Price Index

Construction Equipment Price Index

Equipment prices rose 1.2% year-to-date after increasing only 1% in 2003. Key price drivers suggest that prices will rise several percentage points more by year-end. Steel prices will not ebb until late spring. Import prices are rising more quickly now that foreign suppliers can no longer absorb the full loss from dollar depreciation. And now surging demand is boosting suppliers' margins. U.S. factory equipment shipments are up 35% in the past year; February orders jumped 29% from January.

Construction Equipment Price Index

Manufacturing Construction Spending

Factory construction spending continues to sink slightly lower, but a quick turnabout is expected at midyear. Factory capacity utilization, excluding electronics, has rebounded to near 77%. This is usually the threshold of a strong period of manufacturing capital investment. Surplus factory capacity will shrink rapidly in the spring with the expected 2 to 2.5% output increase and no capacity additions at the current level of construction spending.

Manufacturing Construction Spending

Highway Construction Spending

Highway spending tumbled 3% in February and has dropped 7% since November. Although month-to-month spending is volatile, the recent decline is largely due to the delayed federal highway funding legislation. Steel price spikes and delivery delays have aggravated the decline. Both problems are temporary although they will combine to restrain spending through the spring. Then activity should rebound quickly.

Construction Equipment Price Index

 

The index remains stuck in the 85–90 range, but it is likely to jump significantly higher in the spring. March's 308,000 new jobs will boost confidence in job security, removing the major negative item in the index. Consumers expect economic conditions to improve six months ahead. Also, they report stronger buying plans for homes and other major purchases than are typically reported at the current confidence index level.

Consumer Confidence Index

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