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Thursday, May 31, 2007

Non-Residential Construction Spending Still Strong

by Calculated Risk on 5/31/2007 10:22:00 AM

From the Census Bureau: April 2007 Construction Spending at $1,190.0 Billion Annual Rate

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during April 2007 was estimated at a seasonally adjusted annual rate of $1,190.0 billion, 0.1 percent above the revised March estimate of $1,188.9 billion. The April figure is 2.0 percent below the April 2006 estimate of $1,214.4 billion.

During the first 4 months of this year, construction spending amounted to $345.1 billion, 2.5 percent (±1.8%) below the $353.8 billion for the same period in 2006.
The decline in spending is due to the slump in residential construction. However private non-residential construction spending has remained strong:
Nonresidential construction was at a seasonally adjusted annual rate of $335.9 billion in April, 1.5 percent above the revised March estimate of $331.1 billion.
Click on graph for larger image.

This graph shows the YoY change for the three major components of construction spending: Private Residential, Private Non-Residential, and Public.

While private residential spending has declined significantly, spending for both private non-residential and public construction has remained strong.

As I noted last month, continued strength in non-residential investment is probably necessary to keep the economy out of recession. In the revision to the GDP report today, the headline number was revised down to 0.6% real growth (way below most forecasts), but the good news was non-residential investment was revised upwards: non-residential structure investment was revised up to (UPDATE: corrected numbers) 5.1% from 2.2%, and investment in software and equipment was revised up to 2.0% (from 1.9%). For those of us arguing there is a reasonable chance of a soft landing, this is good news.

Before people start thinking I've changed my views - I haven't. I still think the odds of a recession in '07 are about a coin-flip. And I still think Bernanke's downward revised view of 2.5% to 3.0% growth in '07 is too optimistic.