Construction spending increases

Construction spending rose 0.1% in November 2007. Construction spending is essentially unchanged over the past year, but remains 5% below the peak in construction activity in February 2006, according to an analysis from Reed Construction Data (RCD).

But the report should not be interpreted as an end to the long slide in construction activity because construction costs have begun to rise again. The construction materials price index jumped an outsized 1.4% in November (month to month), according to the Bureau of Labor Statistics, and construction wages rose an unusually large 1%. It is clear that the real volume of construction activity, measured after inflation, fell again in November.

The RCD forecast for total construction spending remains about the same. Spending will decline 2.3% in 2007, increase 3.8% in 2008 (which will about match cost increases) and then gain 9.3% in 2009, when the housing market is again expanding steadily.

Spending on non-residential construction increased 1.6% in November to a level 21% above a year ago. Construction spending for commercial properties increased only 0.7% in November after rising 21% in the previous year. RCD expects non-residential construction spending to increase 17% in 2007, 12% in 2008 and 8% in 2009, which is still substantial real growth after subtracting project cost increases.