Monday, January 5, 2009

Flashback: Nonresidential Investment Boom

I have consistently explained (eg., here and here) how the housing boom was diverting resources away from nonresidential investment. Once the boom was over, it became time to invest in the nonresidential sector again.

I was told that the latter couldn't happen, because banks were (supposedly) not lending.

Well, November showed yet another INCREASE in nonresidential construction spending:

"The Commerce Department reported Monday that construction spending dropped by 0.6 percent in November, less than half of the 1.3 percent decline economists expected. A 4.2 percent fall in housing construction was partially offset by a surprisingly strong 0.7 percent rise in nonresidential activity."

This was no surprise to readers of this blog!!

Construction spending is measured in dollars -- so it is an even bigger real increase (recall that investment goods prices have been falling these days).

No comments: