The latest figures show construction spending was down, but not out, in the month of November. Total spending declined 0.6% against market expectations for a decline of 1.4%. October’s decline was also revised to just -0.4% from a previously reported drop of -1.2%.
The residential market continues to be a lead anchor, with private residential spending down 4.2% — the biggest decline since July’s -6.2% reading. Private nonresidential spending, on the other hand, increased 0.7% after a 0.4% decline in October. Within the private nonresidential sector, spending on lodging was up 0.7%, spending on office property rose 0.9%, spending on transportation projects jumped 3.2% and spending on power facilities climbed 5.3%.
The problem? This nonresidential strength simply isn’t going to last. After all, as the New York Times noted yesterday, vacancy rates are rising, rents are falling, and commercial real estate financing conditions are much tighter now than they’ve been in years. A brief excerpt:
“Vacancy rates in office buildings exceed 10 percent in virtually every major city in the country and are rising rapidly, a sign of economic distress that could lead to yet another wave of problems for troubled lenders.
“With job cuts rampant and businesses retrenching, more empty space is expected from New York to Chicago to Los Angeles in the coming year. Rental income would then decline and property values would slide further. The Urban Land Institute predicts 2009 will be the worst year for the commercial real estate market “since the wrenching 1991-1992 industry depression.”
{ 2 comments… read them below or add one }
Mike,
Regarding your article today about the bubble in bonds, I think there are two more points worth mentioning:
1. I’ve read that the USG must roll over 40% of it’s existing debt in 2009 (in addition to the $2T you described)
2. All this debt must be issued against the backdrop of foreign buyers, such as Japan, China and OPEC, who no longer have the same surplus levels to invest and who are now going to be spending some of their accumulated savings for their own bail-outs and social support.
Looks like a perfect storm for bursting the bond bubble…
Mike, What is wrong with growing big deficits? Who cares? Why would we want to be bailed out of big deficits if
1) Fed deficit = Private sector surplus = private sector equity.
2) Deficits take up excess slack in economy and increase aggregate demand.
3) Thus Deficits are bullish for equities and GDP
4)Deficits are generally good in a fiat currency floating fx monetary regime.
We have been running deficits for the greater part of the last 60 years. Please note
that era’s of curtailing deficits in America and abroad have lead to economic contraction.
Early nineties, Bush 1 raised taxes leading us into a recession. Late 90’s Rubin-o-mics/Clinton-o-mics era of shrinking of deficits and short-lived surplus lead to massive private sector debt and ultimately to the recession of 2001. In fact we are still suffering from the debt hangover of the Clinton-Era today.
If you are afraid of deficits, then you are out of paradigm ( you are trapped in the Gold Standard model) where deficits actually have economic costs. Today, deficits have no economics costs other than the possibility of inflation.