Construction Spending Decreases in November
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One of the continuing obstacles to economic recovery is the fact that the housing market continues to lag. Even though the U.S. economy is expected to improve in 2010, there are concerns that employment and housing issues could continue to slow down the pace of the recovery. On the housing market front, things have not been showing improvement as the latest construction spending numbers show that a decrease continues.
For the seventh straight month, November saw a decrease in construction spending, with spending falling by 0.6%. It is true that decrease in construction spending is slowing, but the issue still remains. BusinessWeek reports on how new construction is suffering — and likely to continue to suffer — in this economy:
Rising office vacancies and plant-use rates close to a record low may discourage new commercial projects, indicating construction will be a drag on the economic recovery. While home sales have stabilized, the threat of more foreclosures will keep residential building muted.
“Construction isn’t going to be adding a lot to growth, at least through the next quarter or so,” Maxwell Clarke, chief U.S. economist at IDEAglobal Inc. in New York, said before the report. “Housing is improving but when it comes to the battle between new construction and absorbing foreclosures, something has to take a hit and construction is it.”
The bottom line is that there is still plenty of inventory available. Bargain hunters are looking for foreclosures and other distressed properties. With so much existing real estate that has to be sold, it is very little surprise that people are shunning new construction.
It will be some time before the real estate market has a large demand for new construction. And, indeed, it is important to be on the lookout for signs that new construction is getting out of control. One of the signs of the impending Great Depression was a glut of building projects that were not being filled. To some extent, that same thing happened just before the most recent financial crisis.
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