A measure that the nation’s commercial construction industry continues to climb out of the recession, nonresidential fixed investment increased 4.4 percent in the fourth quarter of 2010 following a 10 percent increase in the third quarter, according to a recent report by the U.S. Commerce Department. For the year, nonresidential fixed investment was up 5.5 percent, following a 17.1 percent drop in 2009.
“As predicted, the fourth quarter GDP data reflects a general acceleration in economic momentum late last year,” said Associated Builders and Contractors Chief Economist Anirban Basu. “Moreover, economic growth has become increasingly broad-based, fueled by a combination of consumer spending, exports, and business investment. In the long-term, this should mean good things for virtually all construction segments.
“Unfortunately, real estate, residential and nonresidential construction have been the last segments of the economy to rebound. While spending on nonresidential structures was up during the fourth quarter, it is only relative to the unusually low levels of activity in previous quarters,” said Basu. “This is true for a number of reasons, including the fact that many of the nation’s most significant economic excesses during the previous growth cycle were concentrated in real estate, with those excesses often translating into expected levels of construction.
“Meanwhile, commercial real estate continues to be generally associated with high vacancy rates and a lack of demand for new construction. Additionally, there is evidence that credit conditions remain strict, particularly in real estate-related segments,” Basu said.
“Another interesting aspect of the fourth quarter gross domestic product report was the slowdown in federal, state, and local government spending. While many may cheer the emergence of greater fiscal discipline in various levels of government, construction volumes in publicly financed segments may be suppressed going forward as governments slow the growth of, or shrink, both operating and capital budgets,” said Basu. Read More.