“Though the U.S. economy is out of recession, nonresidential building construction is not.” —ABC Chief Economist Anirban Basu

Nonresidential fixed investment grew 4.1 percent on a seasonally adjusted annual rate basis in the first quarter of 2010 following revised 5.3 percent growth in the fourth quarter of 2009, according to the U.S Commerce Department's April 30 gross domestic product (GDP) report. The gain in nonresidential fixed investment is largely due to a 13.4 percent increase in equipment and software spending. In contrast, fixed investment in nonresidential structures, a variable construction companies watch closely, slipped 14 percent during the first quarter. (See Analysis below)

Residential fixed investment dropped 10.9 percent during the quarter – the first drop since the second quarter of last year. Total exports grew by 5.8 percent as exports of goods increased 6.7 percent and services by 3.8 percent. Total imports were up 8.9 percent, as imports of goods were up 9 percent and imports of services were up 8.7 percent.

Personal consumption expenditures grew 3.6 percent during the first quarter as durable goods consumption jumped 11.3 percent. Nondurable goods consumption increased 3.9 percent and consumption of services increased 2.4 percent. The change in real private inventories added 1.6 percentage points to the first quarter change in real GDP, while final sales (GDP less private inventories) grew 1.6 percent. Federal government spending increased 1.4 percent while state and local spending dropped 3.8 percent in the first quarter.

Gross domestic purchases were up 3.8 percent for the quarter following a 3.8 percent increase during the fourth quarter of last year. Overall, GDP increased 3.2 percent in the first quarter following 5.6 percent growth during the fourth quarter of 2009.

Analysis

“Viewed in its entirety, today's GDP release is a bit of a disappointment,” said Associated Builders and Contractors (ABC) Chief Economist Anirban Basu. “While it is true that the economy has now expanded for three consecutive quarters – and it would be nearly impossible to locate an economist who believes the recession is ongoing – much of the improvement was driven by consumers who opened up their purse strings more than had been anticipated.

“This is also consistent with increased investment in inventories as suppliers attempted to keep up with consumption. The nation's information technology and software industry is also clearly rebounding strongly, which has helped support solid recoveries in the nation's regional technology centers,” Basu said.

“Though the U.S. economy is out of recession, nonresidential building construction is not. Even casual observers are aware that commercial real estate is presently overbuilt and underperforming in general. The result is that there is little demand for new construction,” said Basu.

“Moreover, the financial crisis that deepened in September 2008 continues to have a lingering effect in the form of a still tight credit market. A rebound in commercial and other forms of nonresidential construction is not anticipated anytime soon,” Basu said. “The situation could remain problematic for quite some time as state and local governments combat fiscal issues, leading to diminished investment in school construction and other key categories in which public financing plays a major role.”