Nonresidential building construction still not out of recession


Nonresidential fixed investment grew 4.1 percent on a seasonally adjusted annual rate basis in the first quarter of 2010 following revised 5.3 percent growth in the fourth quarter of 2009, according to the U.S Commerce Department’s April 30 gross domestic product (GDP) report. The gain in nonresidential fixed investment is largely due to a 13.4 percent increase in equipment and software spending. In contrast, fixed investment in nonresidential structures, a variable construction companies watch closely, slipped 14 percent during the first quarter.


“Viewed in its entirety, today’s GDP release is a bit of a disappointment,” said Associated Builders and Contractors (ABC) Chief Economist Anirban Basu. “While it is true that the economy has now expanded for three consecutive quarters – and it would be nearly impossible to locate an economist who believes the recession is ongoing – much of the improvement was driven by consumers who opened up their purse strings more than had been anticipated.

“This is also consistent with increased investment in inventories as suppliers attempted to keep up with consumption. The nation’s information technology and software industry is also clearly rebounding strongly, which has helped support solid recoveries in the nation’s regional technology centers,” Basu said.

“Though the U.S. economy is out of recession, nonresidential building construction is not. Even casual observers are aware that commercial real estate is presently overbuilt and underperforming in general. The result is that there is little demand for new construction,” said Basu.

“Moreover, the financial crisis that deepened in September 2008 continues to have a lingering effect in the form of a still tight credit market. A rebound in commercial and other forms of nonresidential construction is not anticipated anytime soon,” Basu said. “The situation could remain problematic for quite some time as state and local governments combat fiscal issues, leading to diminished investment in school construction and other key categories in which public financing plays a major role.”

Click Here to view the ABC Economic Update.


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