Construction starts stable in June

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Reed Construction Data (RCD) reports June construction starts increased 4.7% from the previous month. This is approximately stable activity after discounting for the usual small seasonal gain and allowing for a cut in residential starts when the June estimate is released by the Census Bureau.

 

The current residential estimate is the average of the last three months which is biased up by the homebuyer tax credit. Total construction starts have been relatively stable for the last three months, but remain about 25% below the pre-recession peak level.

Expect an ugly summer for both the economy and for construction. The recovery is distinctly slowing after a spurt of temporary spending earlier in the year for home buying, Census taking and stimulus-funded construction. Heightened debt concerns will keep Congress from fully extending expiring stimulus programs. Federal fiscal policy is now much less expansionary and may turn negative later this year.

GDP growth will slow to near 2% and construction spending may dip briefly. Construction starts will drop temporarily for housing and possibly in the heavy sectors as states cut back in the new fiscal year.

Federal monetary policy remains stimulative, although less so than a year ago. The Federal Reserve Board will delay closing its emergency lines of credit in response to the summer slowdown and may add some funds for small business lending, which is still restricted even for some financially-sound businesses. More help for small banks which are struggling with defaulted commercial real estate loans may also be provided.

The major construction sectors are in distinctly different economic situations, at different points in the building cycle. Housing is expanding, although temporarily on hold. Doubledigit growth will resume in the fall. There is enough room for this in the depressed market before hitting the limit on starts imposed by low confidence and restricted credit access.

Heavy construction is still in the recession phase although the decline has been dampened by the stimulus funds. No significant gain is expected through 2011. The institutional building market is in a similar position. Several down quarters lie ahead before recovery begins in advance of the heavy market recovery.

The commercial market is about to emerge from a recession which was not softened by federal subsidies. Starts are again on the upswing and will lead to rising job-site spending by year-end.

Click Here to view economic forecasts from RCD.

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