Sunday, July 01, 2007

Is the housing recession dragging down the overall economy?

While it is true that weakness in the housing sector is a drag on the economy, it is not true that housing weakness is sinking the overall economy. The simple fact is that construction resources have simply shifted from residential construction to nonresidential construction.

The latest construction spending report for May 2007 shows an overall net increase of 0.9% compared to April. Sure, there was a -0.8% decline for residential construction spending, but that was more than offset by nonresidential construction spending which rose by 2.5%.

Yes, residential continues to trend down, but nonresidential is on a steady trend up.

Spending on nonresidential construction exceeded spending on residential construction back in December 2006 and has been able to keep overall construction spending on an upwards trend since February 2007.

Despite the housing "recession" and angst over subprime mortgages, there is still a vast pool of money sloshing around the world and nonresidential construction is currently a very attractive target for that money and will be for many quarters to come.

These are simple facts that bode well for the economy, but for some reason have been overlooked by the fear-mongering media and naysaying pundits.

-- Jack Krupansky

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