The Impact of Construction on the US Economy

With the current state of markets and the downgrade in the US credit rating, it is natural for the construction industry to a take a hit. In fact it was a good construction industry that actually kept the American economy afloat during the recessionary period recently in 2007. And with it now plummeting, America’s only saving grace can take a major hit.

Recently the US commerce department released figures which showed that residential construction had come down and this gave it a small.6 percent gain in the last financial quarter of the year gone by. With the number of new houses constructed coming down and with less than half the number of houses being sold compared to the year earlier, the construction industry has fallen to 12-year low.

What acted as the saving grace was the increase in construction spending. There was a great deal of non-residential construction which rose as high as 16 per cent. The investment of the local government in infrastructural growth such as that of roads and schools increased by almost 10 per cent, helping keep the industry afloat. This prevented the economy from going into a slump, though by a few decimal points.

In fact currently the contrast is at a unique stage – the current market share of the residential sector has come down to an all time low while that of non-residential construction is the highest since 1988. Also the share that is going to the state and local governments has peaked.

It is quite evident that in the coming year residential investment will continue to dip. But what is sure that non-residential construction will not come under any pressure. Garnering financing in this difficult market is what is making most builders hang on to their development plans.

With the current state of the market, local and state governments are finding it very difficult to maintain a stable investment in development. What can grow rapidly in one year will slow down drastically in the next. The fall in value of real estate values too means a reduction in property tax that the government is able to collect.

There will be continued pressure to hold back on investments considering the current state of American markets. The markets are volatile and it is bound to be this way for a while to come. However, this last quarter of the year can prove to interesting especially with the way the current markets are.