Wednesday, August 5, 2009

Private Commercial Construction Decimated; the Government Builds On

The Commerce Department today released it's construction spending figures today, which while displaying a meager 0.3% uptick from May, remained solidly depressed, -10.2% to be precise when compared to the prior year's figures. Furthermore, beneath the major headlines - and depending upon the legitimacy of the media outlet - you will find that lo and behold, Public construction spending was up 1% month to month, and 5.1% year to year.

For these reasons, the chart above has been created to include only private construction across a broad category of commercial real estate. Realistically, the chart above illustrates the trend that is supposed to be happening, as the number of profitable commercial real estate investment opportunities declines precipitously during a depression. The sheer magnitude of declines though, across broad sectors of the commercial real estate market, do nothing if not foreshadow the massive CRE losses related to the gangrenous commercial debt securities tucked deep within bank's balance sheets.

There is an odd bit of news on this report however; that being the 22.2% year over year Increase in construction spending on automotive parts and service facilities. Likely, that data represents a mini-bubble that formed early in the recession when the populace decided that fixing an old car was better than buying a new one. That bubble was just pricked by the ill-reasoned Clunker program, as everyone now owns a brand new vehicle that - assuming an American made vehicle - has at least 40,000 miles left before it breaks down. Sphere: Related Content

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