Construction spending weaker than expected due to housing tax credits expiring

Construction spending was weaker than expected in July, declining 1.0%. In addition, June construction outlays were downwardly revised to -0.8% from an originally reported +0.1%. Over the last year, total construction spending has fallen 10.7%.


Construction spending has taken a significant leg down in the last three months with the sharpest declines seen in private residential spending following the expiration of the homebuyer tax credit. What we have seen is a slight runup with tax credits followed by a significant decline. 

Public construction spending continues to decline at a steady pace as last year’s stimulus package seems unable to stimulate public sector construction. It is hard to see any good news in this report. However, construction spending stands close to record low levels in relation to GDP and, therefore, a given percentage decline in construction activity now has a much smaller impact on growth than was the case two years ago.


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