Status and Forecast

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

Total Construction Spending

Total construction spending had, since the peak in February 2004, declined 5.6 percent through October, with further small declines expected to close out 2007. Resumed expansion is expected during the winter. Spending will increase 6 to 7 percent from December 2006 to the same month in 2007, but will drop 2.4 percent for the full year over the previous year. Subtracting project inflation, total construction spending will be below the October 2007 level until at least late spring.

Highway Construction Spending

Highway construction spending has been steady since February while project costs increased 5 to 6 percent. The slowdown is due to federal funding delays, and state fuel tax collections that have not kept up with project cost increases. Reed Construction Data reports a sharp drop in highway construction starts in September and October, and this will restrain jobsite spending well into 2008. The expected 5.8-percent rise in 2008 spending reflects rising project costs.

Construction Equipment Price Index

Construction-equipment prices and equipment rental rates increased 2.1 percent in the last year, in spite of a 40-percent-plus drop in U.S. equipment purchases, declining steel prices, and the rising prices for imported equipment. Manufacturers avoided price discounting, due to the $600-million improvement in the U.S. equipment trade balance and the pass-through of higher energy, plastic and nonferrous prices.

Manufacturing Construction Spending

Manufacturing construction spending measured after inflation peaked last summer has declined slightly since then, and is expected to be ebb slightly lower through 2009. Expected market share gains by U.S. manufacturers from a cheaper dollar will be offset by the negative impact on factory production from the projected subpar GDP growth rate. This will keep factory capacity utilization near 80 percent, and will be enough to almost maintain the current level of factory construction.

Consumer Confidence Index

Consumer confidence has been pushed lower by persistent high energy prices, falling home asset values, and a looser labor market. Business and investor confidence has weakened similarly. The result is a likely further small confidence decline. The current confidence level will reduce economic growth to near nil by midyear unless, as expected, the decline in energy and home prices eases. Confidence has weakened the most in the Great Lakes Region, the Southwest and Florida, and among low-income households.