The small March increase was due to a pickup in institutional spending, probably stimulus plan funded, offset by continuing declines in developer financed projects. The stimulus building construction will be more than offset this year by declining state and municipal budgets for schools and public buildings. Expect nonresidential construction spending to slip slightly lower into the fall. The largest risk of decline is for municipal spending, now being cut quickly after a plunge in property tax receipts.
March construction spending increased for healthcare, religious buildings and public safety facilities. None of these gains are likely sustainable during midyear.
Most of the funds for buildings in the stimulus plan are yet to be spent. The amount of regular budget funds appropriated for public buildings is now shrinking rapidly as it always does at this stage of a building cycle. Although state tax receipts have just turned up after record deep decline, state budget positions are still grim with more appropriations cuts coming. Local governments that rely heavily on property tax are still experiencing declining tax receipts. President Obama FY "11 budget, beginning in October, calls for a marginal drop in federal building construction funds plus a huge $5.2B cut in Defense Dept. military base realignment spending. Congress is not now inclined to appropriate more than Obama requests.
“For lease” construction spending will continue to fall slowly until late in 2010. Building occupancy and rental rates are still weakening. In spite of the sharp cutback in space completions, the space supply is still rising slightly as previously started projects are completed and space demand is still shrinking as it usually does for 4-5 quarters after the overall economy begins expanding. Note that starts of for lease buildings have been trending up since the cyclical low point last June and will increase the amount of work under construction later this year.
SOURCE: Reed Construction Data
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