Tuesday, January 22, 2008

Another Shoe

Despite the well-documented plunge in residential real estate, private non-residential construction was still robust in November, as the chart below shows (click to enlarge). Spending came in at a record $375.8 billion annualized; by comparison, private residential construction in the same month was $484.9 billion annualized. Therefore, non-residential construction is a very important sector for the economy, almost as important as housing.

The breakdown by type of construction is shown below (click to enlarge).

With 50% of the activity concentrated in commercial space, offices and hotels, a recession will result in further woes for the real estate sector and the banks that finance it.


  1. I don't think CRE was ever 'de-coupled' from housing, let alone wealth destruction via a stock market 'correction', declining confidence and increasing risk aversion that goes with that, or worse a recession.

  2. Well at least with the announcement of today's rate cut the Fed has finally dropped all pretenses that it is a responsible deliberative body that makes decisions based on economic conditions -- this is borne of panic, and is solely designed to prop up the stock market indexes. Just disgraceful.

  3. Don't worry eh...

    They can only go down to 0%.

    Or perhaps.. we'll end up paying the Fed interest for the privilege of saving instead of consuming?

  4. Hellasious
    You do realise that the interest rates have been heading below inflation since the Supreme Court ruled on Florida in 2000? You noticed how they went up when Clinton was elected, and peaked just before 12/00 and the Gore and Bush election?
    You are already being paid to borrow money and penalised for saving.
    My bet is that the Fed has given up on a Republican victory in November and is setting up for a crash and depression the way that Bush Sr. gave Clinton Somalia as a housewarming gift in 1992.
    The market is a lot less stable these days. I don't think it's going to work out the way they expect this time. I think we are in for a Japan and Germany post WWII default and capital levy.
    Afterwards the low marginal tax rates led to a huge twenty five year economic boom and 32 fold rise in GNP.

  5. Your joke about the privilige of saving rang a bell with me. It was a theme in Brave New World about the gov wanting everyone to keep consuming. Per Wikiquotes: "Ending is better than mending."
    (A government slogan encouraging people to throw away old possessions and buy new ones, thus theoretically keeping the global economy strong.).