The nation’s economic troubles have finally caught up with the commercial and industrial construction industry as real nonresidential fixed investment, which includes the purchase of nonresidential structures, equipment and software, decreased 1.0 percent during the third quarter of 2008. The downturn comes in sharp contrast with the 2.5 percent increase the previous quarter, according to data released Oct. 30 by the U.S. Commerce Department on the nation’s gross domestic product (GDP). 

This latest GDP report shows that investment in nonresidential structures showed the only increase in fixed investment, up 7.9 percent this quarter, compared to an 18.5 percent increase the previous quarter.  Equipment and software fixed investment dropped 5.5 percent in the third quarter following a 5 percent decrease last quarter. Real residential fixed investment decreased for the eleventh straight quarter declining 19.1 percent.  Personal consumption decreased 3.1 percent in the third quarter after increasing 1.2 percent during the April-to-June period.  Exports climbed 5.9 percent during the third quarter, but fell far short of the corresponding 12.2 percent increase during the second quarter. Imports continued to decline and were down 1.9 percent in the third quarter, compared to a 7.3 percent in the second quarter

Overall, real GDP fell at an annualized 0.3 percent during the third quarter, an indication that the recession has begun. The fourth quarter is likely to be even weaker as the economic data begins to more fully reflect the massive losses in financial wealth that occurred in September and October and the ongoing loss of jobs.

“Because the volume of commercial and industrial construction often lags overall economic performance by one to two years, the implication of this latest GDP report is that the next one to two years will become increasingly challenging from the perspective of top-line revenue growth among contractors,” said Associated Builders and Contractors (ABC) chief economist Anirban Basu. “Though consumers now enjoy access to lower energy prices and inflation has become much less of a concern, consumer confidence has cratered.
 
“Moreover, even as the federal government ramps up spending, many states and local governments are now racing to slash their budgets as retail, income, property and other tax collections are coming in well short of expectations,” added Basu. “This is not particularly good news for contractors who depend in whole, or in part, on publicly-financed projects.

“The economy appears poised to further deteriorate in the quarters ahead. Job loss is accelerating and the U.S. economic slowdown has gone global,” said Basu. “In addition, the policy environment is expected to change markedly in the months ahead with the election of a new president and Congress, and this could further constrain American capitalism and its capacity to rebound forcefully from the current episode.”