Construction Industry Faces Hard 2009

The equity markets dropped considerably Monday morning, but then yo-yoed around for the rest of the day–small fluctuations, really–and ended up slightly down, for the first time in four trading sessions and the first time this year. The Dow Jones index dropped 76.7 points, or 0.85 percent, while the S&P 500 dropped 0.35 percent and the Nasdaq lost 0.49 percent. Investors might be buying stocks (sometimes), but consumers aren’t buying so many cars. In December, sales of GM cars were down 31 percent compared with the same month last year, while Ford sales were down 32 percent. Toyota suffered a 37 percent sale decline for the period and Chrysler’s sales slumped a whopping 53 percent. Spending on construction projects in the United States dropped in November, according to the U.S. Department of Commerce, but not as much as analysts had forecast. The aggregate drop, for all kinds of construction, was 0.6 percent compared with October. A Reuters poll had predicted the drop would be 1.3 percent, while a Bloomberg survey expected a 1.4 percent drop. In October, construction dropped by 0.4 percent for the month–a revised figure, replacing the original 1.2 percent that the Commerce Department reported earlier. What’s keeping the construction business from a deeper contraction, at least for now? Federal spending on such projects, for one thing, which was up 6 percent in November, representing an informal federal stimulus already under way. Even state and local governments, strapped for cash as they are, spent 1 percent more on construction during November than the month before. “Public spending on construction projects, especially by the federal government, is bound to grow even further as part of the new administration’s stimulus package,” Ken Mayland, president of ClearView Economics L.L.C., told CPN. “That will likely be the construction industry’s only saving grace in 2009.” The November uptick in nonresidential private construction (0.7 percent), Mayland added, doesn’t represent lasting improvement in that side of the business, since the commercial property construction pipeline will be emptying out in 2009. “Even in absence of the credit crunch, there would be a downturn in commercial construction,” he said. “The credit situation is making it that much worse. I expect a hard landing for commercial construction this year.” Residential construction dropped about 4.2 percent in November, and is down 23.4 percent from the same month in 2007. That’s a significant slide, Mayland said, but he also posited that such precipitous declines aren’t going to go on too much longer. “I’m not saying the residential construction market will be healthy anytime soon, but it’s possible we might see the bottom in 2009.”