Monitoring Government Construction Statistics Can be Revealing
Predicting the future of the economy is more an art than a science. Documenting the performance of the economy, however, is simply an accounting process, and like much of accounting can indicate disheartening results.
The Commerce Department recently released the November construction spending statistics. It reported that construction activity, despite the massive about of stimulus spending fell for a seventh consecutive month. Spending on both residential and commercial project declined. As expected, spending on housing fell. This time by the largest amount in six months. Non-residential construction also fell for the eighth consecutive month. Although government statistics have given economists the confidence to state that the recession is over, the weakness in the construction sector dims the prospects for a recovery that is strong enough to reduce unemployment and lift consumer confidence.
In November there was a 0.6 percent drop in construction activity which followed a 0.5 percent decline in October. The November decline exceeded the Commerce Department’s earlier estimate. Construction spending is down to a seasonally adjusted annual rate of just over $900 billion which the Department states is the slowest pace in more than six years and is 13.2 percent below the level of activity a year ago.
Part of the construction decline is attributed to the problems with commercial building activity that has been hurt by the credit restrictions. Developers have trouble getting new financing from banks now that the default rates have risen sharply on loans for commercial real estate projects. Banks realize that the housing foreclosures were just the leading edge of a collapse; the commercial market is predicted to suffer high loan defaults as businesses continue to shut their doors and discontinue lease payments.
Spending on federal construction projects did rise by over 1 percent in November; state and local construction projects, an area that has been hurt by deep budget shortfalls, declined by about the same percentage.