The percentage decline in private nonresidential construction spending in the first quarter of 2009, the largest percentage drop since data was collected, beginning in 1947.
“The sharp drop can be partially attributed to the collapse in oil prices, as the structural investment number includes oil and gas rigs, which have fallen by more than half from their September 2008 peak,” says Scott Hazelton, IHS Global Insight’s senior principal and director, business planning and strategy.
“However, the larger issue is a combination of economic recession and consequent mounting job losses combined with a poor real estate market featuring the deadly combination of falling prices and tight credit. The cumulative employment loss since the December 2007 peak, as of early May, had swelled to 5.1 million, while the Federal Reserve survey of lending officers indicates that credit conditions remain near record tight levels,” he says.
“It is difficult to see a nonresidential sector with a positive outlook. Real commercial construction put-in-place will fall in excess of 30 percent in 2009, with another double-digit decline to follow in 2010. Construction of manufacturing buildings is still showing growth, but this is concentrated in the petroleum sector and reflects work begun when energy prices were high. All other manufacturing sectors have been in decline for months and, inevitably, the holdouts will follow. The broad manufacturing construction sector will see steep declines later this year and an even steeper drop in 2010. Health care and education offer the best of limited opportunities. A growing and aging population requires core services that are not easily deferred. While construction growth will slow in these sectors, it will not contract for private investment,” he says.