Tuesday, September 1, 2009

"We're All Socialist Now" Construction Edition

Forbes details:

US construction spending unexpectedly fell by 0.2% in July to its lowest level since February 2004 as private nonresidential construction fell for the third consecutive month and public construction saw its first decline since January, the Commerce Department reported today.

Economists were expecting spending to be unchanged in the month after rising 0.3% in June, which has since been revised down to a 0.1% rise. Consistent with recent woes in the commercial real estate market, private non-residential spending fell 1.2%. Declines were seen in nearly every non-residential spending category except for religious, communication and manufacturing. Private residential spending rose 2.3% in the month, marking the largest increase for this sector since September 2008 and pushing total private construction spending up by 0.1% in July. Despite last month's gain, private residential construction spending is still down 27.8% over the last twelve months.

What isn't detailed in the article is the MASSIVE divide between public and private construction. I can't decide if this is good:
  • Stimulus for the economy
  • Replacing construction that would / should come from the private sector
or bad:
  • Unneeded construction (i.e. the private sector knows better /overcapacity as is
  • Increased debt to pay for construction

Source: Census


  1. I think the question to ask is what is being built. Broadly speaking, I can't think of what the government could build that wouldn't result in further over capacity; however, I am unsure of what they are building.

    Furthermore, they have financed other construction through TALF and god know what other programs resulting in more capacity and debt.

    On the margin, I have to think this is a negative given what I believe are secular issues facing the economy. In short, I don't that government construction will bridge the gap, only delay it.

  2. Government also happens to be the biggest buyer of mortgages through Fannie and Freddie. The private market for mortgage backed securities is for all practical purposes, frozen. Foreigners use to be big buyers of agency securities (Fannie and Freddie) and now they are backing away as well. See chart here:http://akhilaaiyer.files.wordpress.com/2009/09/tic-graphs-4.pdf. Guess the next round of funding comes from the printing press.

  3. There are a lot of shibboleths running around. This is good on two fronts. First, stimulus is stimulus in the short-term; doesn't matter if you throw bills in cleavages at Vegas if the gal goes and feeds her kids. In the long-run if it builds bridges, repairs road, prevents another brownout it's investment that raises l.t. output. We're so far from worrying about a revival of private demand and/or crowding out that the real question is whether we can get this engine primed enough to be self-starting or it stalls in a few quarts. Which did this last time in '04. Remember those two Kariel papers I pointed out ?

  4. Thanks for the information but i don’t think so that the home construction has fallen by any percentage.At least the market for new homes isn’t getting worse anymore, and that’s the first step to getting better.
    Construction of single-family homes rose in July for the fifth straight month, edging up almost 2 percent to the highest level since October. Building permits climbed nearly 6 percent.
    Each new home built creates about three jobs on average and generates about $90,000 in taxes paid to local and federal authorities, according to the National Association of Home Builders.
    With new construction up 37 percent from its low point this winter, the industry is expected to help the overall economy this quarter for the first time in 31/2 years.

    Portable Storage,