Construction equipment shipments from U.S. factories have been steady at about $2.3 billion per month since July, as rising exports offset small declines in domestic sales. This trend is expected to continue into early 2009. Although equipment manufacturers have experienced a rise in their inventories and a cut in their order backlogs, equipment price inflation has risen to an annual 2.0-percent pace, and will accelerate with the just-beginning 15- to 20-percent surge in steel prices.
Contractors have cut 331,000 jobs since September 2006, and at least 40,000 to 50,000 more job cuts are projected for the next few months. Nonresidential contractors have started cutting jobs in the last few months, but spot shortages of skilled workers still persist. This has been accompanied by slower wage gains for construction workers. The year-to-year wage rate gained hit its peak of 5.4 percent in May 2006, but has now fallen to about 4.0 percent, and more decline is likely well into 2009.
Public construction spending is up 6.6 percent from a year ago. However, this reflects little volume gain after accounting for rising project costs. The nominal value of public construction spending has not increased since late last summer, when the subprime mortgage collapse caused funding difficulties for other construction projects. Expansion of nominal spending growth will resume this summer as the financial turmoil settles, but spending gains will only cover higher project costs through '09.
Commercial construction spending is now 5.3 percent below the peak level of October 2007, and will weaken further well into 2008. Unlike those previous, the current slowdown/recession originated in the consumer market and not the investment market. As a result, inflation-adjusted consumer spending is now declining. Commercial development is being restrained by both very slow demand growth for retail space and difficulty arranging construction financing.
Housing starts dropped from 2.3 million to 1.0 million since January 2006, and overall will drop slightly more early in 2008, but will continue even more so in the Southeast and Southwest through the year. Shrinking real income and recession level consumer confidence are now the major causes of declining housing starts. Only about one-third of the recent decline is expected to be recovered by the end of 2009. Housing starts will remain below the underlying demographic trend of 1.85–1.90 million into 2010.