Wednesday, January 03, 2007

Snap! Crackle! Pop!

Starting off the New Year with a “BANG!” comes today’s “Construction Spending” report showing truly astounding and ever accelerating weakness to the nations construction activity.

Most notably was the decline to single family construction and improvement spending which dropped and whopping 20.4% as compared to November 2005.

This is a particularly important report in that it is both a precursor to additional declines that will likely be seen in the “fixed residential investment” line item of the upcoming Q4 GDP report as well as representing a key indicator of the housing market in general.

Additionally, this severe down draft to construction activity should serve as a harbinger of things to come for the residential construction and related job markets.

As 2007 progresses we are likely to see a correspondingly sharp increase in unemployment as residential construction projects complete and unneeded workers are shed in the tens of thousands nationwide.

Recently, it has been reported that there are roughly two million vacant newly constructed homes in the US apparently representing one million more homes than normal.

By all accounts, it will take the home builders and investors that are holding all of these homes quite some time to work through this excess inventory which should continue to put a serious damper on construction spending and the job market as well.

Today’s report posted the eighth straight monthly decline to total dollars and the twelfth consecutive year-over-year decline as a percentage change.

Key Report Details:

  • The seasonally adjusted annul rate of private residential construction spending has now dropped 11.47% from the peak set back in December of 2005.
  • Overall private residential construction spending dropped 11.13% as compared to November 2005.
  • Single Family residential construction spending dropped an astounding 20.4% as compared to November 2005.
  • The latest 11.13% year-over-year decline is the largest percentage drop in over 12 years and the greatest drop to date for this year and for this cycle.
Review the following charts (click for larger version) to see the extent of the current decline in private residential construction:





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