Construction Spending Declines

Construction spending declined for its fifth consecutive month in February, but far less than many analysts expected. The report showed a decline of 0.3% in spending compared to market expectations of around -1% and up from a prior estimate of -1.7%. This is good news for the real estate industry that has been struggling with a difficult economy for the past five months.

Residential construction spending continues to be the sore spot with a 0.8% decline compared to January and a 4.2% increase compared to the same month last year. The data reflects a continued rise in foreclosures amid falling home prices along with tightening consumer credit. The number was less than expected, however, after federal intervention has helped save some homeowners from foreclosure and encouraged banks to lend more money.

Commercial spending saw the largest increase with a 5.5% increase over last month despite a 13.1% decline compared to the same time last year. The market for commercial buildings was hit hard over the past year as companies cut capital spending and chose not to build new factories. However, the office market saw an 11.9% increase since last year despite this cut in spending, which suggests that companies are still keeping the offices open.

In the end, the Construction Spending report isn’t considered to be especially significant, but the rapid deterioration of the real estate market has put it into focus. These latest numbers suggest that the non-residential market may be on the rebound, but residential buyers may need some time before they start building again. Next week, investors will be able to get a better read on the market with consumer credit and pending home sales data.

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