by Calculated Risk on 1/02/2008 10:57:00 AM

From the Census Bureau: November 2007 Construction Spending at $1,165.1 Billion Annual Rate

Spending on private construction was at a seasonally adjusted annual rate of $860.7 billion, 0.7 percent (±2.2%)* below the revised October estimate of $866.6 billion. Residential construction was at a seasonally adjusted annual rate of $484.9 billion in November, 2.5 percent (±1.3%) below the revised October estimate of $497.1 billion. Nonresidential construction was at a seasonally adjusted annual rate of $375.8 billion in November, 1.7 percent (±2.2%)* above the revised October estimate of $369.5 billion.

Note that overall construction spending increased slightly (including public spending), but private construction spending declined in November. Once again, non-residential spending offset some of the decline in private residential construction spending.

Click on graph for larger image.

The graph shows private residential and nonresidential construction spending since 1993.

Over the last couple of years, as residential spending has declined, nonresidential has been very strong. There is plenty of evidence - like the Fed's Loan Officer Survey - that suggests a slowdown in nonresidential spending is imminent, but it hasn't shown up in the construction spending numbers - yet.

by Calculated Risk on 1/02/2008 10:46:00 AM

From MarketWatch: Factory sector shrinking in December, ISM says

The U.S. factory sector contracted in December for the first time in nearly a year as new orders collapsed, the Institute for Supply Management reported Wednesday.

The ISM index fell to 47.7% from 50.8% in November. It's the lowest reading since April 2003 and the first sub-50 reading since January 2007.
...
The new-orders index fell to 45.7% from 52.6%, the lowest since October 2001, as the nation was pulling out of the last recession. Just 15% of firms reported rising orders; the percentage has been lower only once in the past 25 years.

"Slower demand appears to be more of a problem than excessive inventories," said Norbert Ore, chairman of the ISM's survey committee.

Manufacturing (especially export related) and commercial real estate were two of the bright spots for the economy in 2007. Both are showing signs of slowing sharply.

by Calculated Risk on 1/02/2008 10:05:00 AM

From Peter Goodman and Vikas Bajaj at the NY Times: In the Land of Many Ifs. This is a look at the economy in 2008, and starts with housing:

An era of free-flowing credit and speculation has led to a far-flung empire of vacant, unsold homes — 2.1 million, or about 2.6 percent of the nation’s housing stock ...

This ... will not be whittled down to normal levels, economists suggest, until national home prices fall by at least 15 percent from their peak, reached in the summer of 2006. ...

The glut could be exacerbated if an already alarming wave of foreclosures continues to broaden, claiming even those with supposedly good credit.

Last year, the trouble in the mortgage market was largely confined to subprime loans extended to homeowners with weak credit. ...

... default rates on loans to homeowners with relatively good credit are ... rising sharply ... In November, 6.6 percent of so-called Alt-A home loans ... were either delinquent by 60 days or more, in foreclosure, or had been repossessed. That was up from 4.3 percent in August.

This is a potentially ominous sign, because subprime and Alt-A mortgages issued in 2006 together made up about 40 percent of all mortgages. ...

The spike in foreclosures is happening even before many mortgages have reset to higher rates, suggesting that borrowers are falling behind because their homes are worth less. Many are having trouble refinancing as banks tighten lending standards.

All of which explains why many economists expect national housing prices to fall by 5 to 10 percent more in 2008, and perhaps into 2009 as well, before hitting bottom.

Such a drop could ripple out to the broader economy by depressing consumer spending, which accounts for about 70 percent of all economic activity.

This touches on several key subjects: there is substantial excess housing inventory, the mortgage problem is broader than subprime, foreclosures are spiking before rates are resetting (because of falling house prices), lending standards are being tightened, housing prices will fall significantly, and Mortgage Equity Withdrawal is falling - probably impacting consumption. A nice overview.

by Anonymous on 1/02/2008 09:32:00 AM

Go here, and then go here.

(Sorry, I'm in the middle of installing software. That requires attention to my dishwasher.)

. . . Install is going quite well, thanks.

by Calculated Risk on 1/02/2008 12:13:00 AM

From Bloomberg: Centro Puts Itself Up for Sale as Debt Deadline Looms

Centro Properties Group, facing a Feb. 15 deadline to refinance A$3.9 billion ($3.4 billion) of debt, will consider offers for all its assets including 700 U.S. malls.
...
Centro's largest U.S. shopping centers are Independent Mall in North Carolina and Cortlandt Towne Center in New York.

This sale will give us an idea of how far CRE prices have fallen.