Construction spending fails to participate in economic rebound

Consumer spending is up and output at the nation’s factories continues to expand, but so far, the broadening recovery has not spilled over to housing and construction.

Construction spending in December fell 2.5% to $787.9 billion.  Residential construction, which the charts below focus on, dropped 4.1% to $226.4 billion.   Private nonresidential construction dipped 0.5% to $260.5 billion.

With a backlog of foreclosures threatening to boost inventory, coupled with a cautious home buyer, the slump in spending that began in early 2006 seems likely to continue into its fifth year, lending little support to GDP.

If there is a silver lining to what’s going on in housing, residential real estate makes up a much small percentage of GDP than it did in early 2006 when the slump in spending began.

Construction spending rises from depressed level

Construction spending increased 0.5% in September to $797.5 billion, as a rise in private residential construction offset a drop in nonresidential outlays.

As the chart reflects, the the decline in nonresidential has slowed modestly while residential construction has held in a narrow range for over a year and has been affected by the tax credits for homebuyers.

Excess housing inventories are being absorbed in the new home market, but foreclosures are still an obstacle to a more permanent recovery.