Construction Spending Plunged Record 12.4% in 2009

U.S. construction spending fell 1.2% in December -- its fifth decline in six months -- the U.S. Commerce Department announced Monday, as private home-building continued to slump amid a glut of unsold homes created by the 2007 to 2009 recession.What's more, for all of 2009, construction spending plummeted a record 12.4% to $939.1 billion from $1.07 trillion. That's the biggest, one-year decline since the Commerce Department started keeping records for the metric in 1964.

A Bloomberg News economists' survey had expected December construction spending to decline 0.5%. Construction spending fell a revised 1.2% in November, worse than the previously released 0.6% decline.

In December, spending for private residential projects declined 2.8% and sank 28% for all of 2009; spending on private non-residential projects rose 0.2% in December but fell 11.2% in 2009. Meanwhile, total public construction (federal, state, local) fell 1.2% in December, including a 1.5% decline at the state and local level.

Economists follow the Commerce Department's construction statistics because they provide the most comprehensive, national survey of both private (residential, commercial) and public sector building activity.

Economic Analysis

Without question, 2009 was a down-beat year for U.S. construction spending, but it came as no surprise given the overbuild in the private residential (single family homes, condos) segment.

There were two key take-aways from the December data: First, obviously, without the sharply lower year-over-year single-family home construction segment, U.S. construction activity would look decidedly healthier.

Second, public construction spending was net-higher for 2009 as a result of the fiscal stimulus package, but it was offset somewhat by spending cutbacks at the state and local level. Tax revenue declines stemming from the recession's large lay-offs have forced state and local governments to scale-back work and in some cases eliminate infrastructure and related construction projects.

Hence, in 2009 the federal government was responsible for the GDP boost stemming from public construction activity. Further, without the fiscal stimulus, U.S. construction activity in 2009 would have been even more dismal than the record 12.4% plunge.
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