Construction Turning Up
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Supporting Image for Blog Post

 
With the exception of a tiny increase in the second quarter of 2007, private construction – home building plus commercial construction (offices, retail space, manufacturing plants,...etc.) – has contracted in every quarter in the past four years.  Overall, private construction fell by 39% since early 2006, the largest 4-year drop on record (dating back to the late 1940s).  Given this steep decline, as of the first quarter of 2010 private construction comprised only 5.3% of GDP, the smallest share on record.

However, data on building suggest private construction is now trending upward.  Single-family home building, which tends to show relatively little volatility, has increased 11 months in a row.  Meanwhile, residential improvements, which are extremely volatile from month to month, have remained consistently above year-ago levels.  Most recently, this week's construction report for April shows that commercial building was up for the first time in more than a year.  In particular, the construction of manufacturing plants is up three months in a row.

Bottom Line:  Home building got so low by mid-2009 that the industry was in a position to still work off excess inventories while home construction rebounded.  We expect that rebound to continue and recent data are consistent with that trend.  Now, commercial construction may be nearing a bottom, too, if it hasn't already.  Barring a major negative shock to the economy as a whole, the worst case scenario for private construction is a gradual rising trend as gains in home building outweigh small losses in commercial construction.  Best case scenario: construction will soon join manufacturing as a major pillar of the V-shaped recovery.
Posted on Friday, June 4, 2010 @ 1:02 PM

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.