Saturday, September 29, 2007

Little comfort in commercial construction figures

Construction spending beats predictions

Total spending on construction grew 0.2 percent as commercial projects offset home building losses.


September 28 2007: 10:36 AM EDT

WASHINGTON (AP) -- Construction spending posted a bigger-than-expected 0.2 percent gain in August as strength in non-residential construction offset a continued plunge in home building.

The Commerce Department said Friday that the August increase pushed total construction spending to a seasonally adjusted annual rate of $1.166 trillion.

The gain reflected a 2.3 percent rise in spending on office buildings, shopping centers and other non-residential projects. That was the biggest increase in this category in six months.

Spending on home building fell by 1.5 percent, the 18th straight drop in this area, with more weakness expected in coming months as builders scramble to cut back production in the face of slumping sales and a record number of unsold homes.


Analysts had been forecasting that the weakness in home building would be enough to pull down overall activity by about 0.2 percent. According to revised estimates, construction spending fell by 0.5 percent in July and 0.1 percent in June. Top of page



I’ve talked about this before. Commercial construction lags residential. This lag can be up to two years as commercial projects, especial if they are larger buildings, take more time to complete and usually start well after residential projects get underway.

As new neighborhoods spring up, commercial interests begin to move in based on the quantity of housing, projected population density and their prospects for making a profit.

First come the homes, then the dry cleaners, Pizza Huts, Car Dealerships, office buildings, etc...

It follows as no surprise then that commercial construction still has a pulse, but touting it as good news is simply whistling past the graveyard. Once these commercial projects got funded and broke ground the probability of investors walking away from them diminished.

Half completed they most likely will go the distance to completion but to what end? Sparsely populated neighborhoods, little local traffic and few prospects of business interests moving in to rent the available space.

Compound this further by the fact that once the project ends, there go the jobs they supported and all the subcontractors and suppliers associated with their building.

Increased commercial building numbers good news? No…
It just points out how much time we have left before those jobs dry up.
Vern

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