Construction Spending

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses construction spending.

• Very lagging data on construction spending for November showed residential construction dollar spending up by 18 percent from one year ago, even though it was modestly lower from the prior month. Private commercial real estate construction spending was higher by 8 percent from one year ago. Construction of office and lodging buildings grew at a solid double-digit pace, while construction of private health care buildings was lower from one year ago.
• The overall rise in construction spending directly adds to economic growth, generating jobs and income. Tax revenue will also naturally rise with greater economic activity.
• The newly passed ‘fiscal cliff’ tax revenue projections over the next 10 years will be grossly off with reality if looking back 10 years from now. Though a baseline scenario needs to be used for projections, the actual revenue from higher tax rates will be substantially different. Tax revenues may be much larger than the estimate or much lower. Things like construction spending growth will matter since actual tax revenues (as opposed to projected revenues) will depend heavily on economic growth and jobs.