Tuesday, September 2, 2014

How Healthy is the Construction Sector?

Spending on construction, while up from the depths of the Great Recession, is still just about at its pre-recession levels, particularly when one looks at the various components that make up total construction spending.

Here is a graph showing total spending on construction of all types:


The June 2014 level of $950.154 billion is the same level that was seen back in early 2004 and 21.7 percent below the peak of $1.213 trillion in March 2006.

Now, let's look at the components of construction spending starting with residential construction:


The June 2014 level of $355.915 billion is the same level that was seen back in February 2001 and is a significant 47.4 percent below the peak in March 2006 when private residential construction spending hit $676 billion.

Here is a graph showing total non-residential construction spending:


The June 2014 level of $329.54 billion is the same level that was last seen in February 2007 and is 20.5 percent below the peak of $414.5 billion in January 2008.

We often think of government being able to stimulate the economy out of a recession.  Here is a graph showing total public spending on construction:


Public spending on construction has fallen far less than the other three components and in June 2014 was 18.7 percent below its peak of $325.5 billion at $264.7 billion.  Unlike the other components, however, it has declined more or less continuously since the end of the Great Recession.


When we break down the various components of construction, it becomes quite clear that the construction sector is still far from healthy, particularly given that we have to go back many years, particularly in the case of residential construction, to find spending levels that are comparable to current levels.