Construction starts have rebounded in the last eight months after the cyclical low last June. But monthly construction spending has dropped over 20% in the last 15 months. The amount of work underway was sharply reduced by the plunge in starts early 2009 and was titled toward renovation and away from new buildings but is now being refilled with higher starts so very little further drop in jobsite activity is expected. Monthly construction spending will begin rising again this summer.

　　Commercial market drivers measuring current activity, such as occupancy and rent, are negative while longer term indicators, such as starts and credit costs are positive. The result is a continued slow erosion in current activity with declining completions exceeding increasing starts. This balanced will switch in 3-6 months causing an upturn in monthly construction spending for developer financed projects which will progressively strengthen late in 2010 and through 2011. Part of the spending pickup expected later this year will be the restart of previously suspended projects, usually with new owners and new financing.

　　The economic environment for institutional construction is now weakening after holding up through the recession. Cash strapped state and local governments are being forced to cut spending and are generally choosing to save jobs and postpone building maintenance or expansion. The federal government has shifted its focus from financing more jobs by building buildings to financing any type of job with employee tax forgiveness. President Obama’s proposed FY2011 budget includes a small reduction in building construction funding.

　　Federal building stimulus funds will substantially offset weakness in investment and general funds in 2010-11. Almost all of the building stimulus funds appropriated 16 months ago have yet to be spent. Congress will likely not appropriate more building stimulus funds early this year. Instead, funding will be directed to tax funding for small business hiring.