Construction Economic News

The Recession Is Over! (But Not For Construction)

April 2, 2009

It is growing more likely that real (inflation-adjusted) gross domestic product (GDP) will rise slightly in the quarter that began on April 1 from the dismal levels of the first quarter. The growth is likely to pick up gradually through the rest of the year. But it will be very uneven, unlike the downturn, which affected all sectors.

Tax withholding was reduced on April 1 and unemployment benefits were increased and extended in duration. These factors alone may be enough to help raise consumer spending, which accounts for 70% of GDP. Federal government purchases of goods and services should rise enough to offset declining state and local spending as the stimulus outlays for construction begin. But business investment and net exports, the other components of GDP, may continue shrinking into next year.

For the next few quarters, the only action in construction is likely to be in power (power plants, transmission lines, wind farms), military base realignment work and a growing number and variety of stimulus-funded projects. The next segment of construction to revive is likely to be single-family homebuilding, perhaps before the end of 2009. With 30-year fixed mortgage rates now at an all-time low of 4-3/4 percent and tax credits available from Uncle Sam and the state of California, more people will be able to afford homes.

By early next year, retail construction should resume, although much of it will consist of renovating existing stores for new tenants. However, other types of private, state and local-funded construction may remain dormant until late 2010 or beyond.