Construction Spending Fell 9.3% Last Year : * Economy: It was the steepest year-to-year drop since 1944--and the Southland fared even worse than the rest of the nation.
With the overbuilt commercial sector leading the retreat, U.S. construction spending fell 9.3% in 1991 for the steepest year-to-year drop since 1944, the Commerce Department reported Monday.
Southern California construction had an even worse year than the nation as a whole. Construction activity last year, as measured by the value of building permits, plunged 25.6% in Los Angeles County and 27.1% in Orange County, according to the Construction Industry Research Board in Burbank.
In a separate report, the National Assn. of Purchasing Managers said its monthly index of business activity stayed level at 47.4% in December, indicating an economy that is stagnant.
Economists took some comfort in signs that construction spending for single-family homes may have bottomed out a few months ago and may be poised for a small rebound.
“On the single-family side, there’s no excess supply of homes--in fact, the supply is quite short,” said Lyle E. Gramley, chief economist for the Mortgage Bankers Assn.
He said low interest rates might spur demand for new homes, as might some elements of President Bush’s proposed economic recovery plan, such as tax credits for first-time home buyers.
Total construction spending--residential, non-residential and public--was $404.9 billion in 1991, down from $446.4 billion in 1990, the Commerce Department said. It was the lowest total since 1985’s $377.4 billion and was the first yearly drop since 1982--the end of the last recession, when spending fell 4%.
In December, construction spending was down 0.2% to a seasonally adjusted annual rate of $407.4 billion. That followed a revised 0.5% decline in November.
New housing spending fell to $161 billion from $183 billion in 1990. Spending on non-residential projects such as office buildings was $96.8 billion, down from $118 billion.
The only increase came in public construction spending--for highways, water works and the like--which rose in 1991 to $109.2 billion from $108.7 billion in 1990.
“Many people think this has been a consumer-led recession, but that’s a false impression,” said economist James Doty, president of Chapman University in Orange. “The major reason the recession has been as long and as deep as it is has been the drop in construction spending.”
The value of building permits in Los Angeles County was $5.94 billion in 1991, compared to $7.99 billion in 1990, according to the Construction Industry Research Board. That sharp drop followed a 26.9% decline in 1990 from 1989, when permit values totaled $10.93 billion.
Locally, permits for new commercial buildings dropped to $954 million in 1991 from $2.25 billion two years earlier.
“There’s no (commercial) construction now and there won’t be until the market turns,” said Stephen Bay, corporate vice president of real estate brokerage Julien J. Studley Inc. in Los Angeles.
Orange County saw the value of its building permits fall to $1.87 billion in 1991 from $2.56 billion in 1990. The plunge follows a 30.8% decline the year before, when the value of building permits totaled $3.71 billion.
The purchasing managers index describes an economy “in limbo,” said Cynthia Latta, senior financial economist at DRI/McGraw Hill.
“A reading below 45 says recession very clearly; a reading above 50 says recovery very clearly,” she said. But the reading for the last two months has been stuck in the middle, at 47.4%. “That says, ‘Well, the economy isn’t going anywhere’--but that’s better than going down,” Latta said.
Index for Business Activity Flat
The purchasing managers’ index tracks overall business activity at 300 industrial companies.
Jan., 1991: 38.7%
Jan., 1992: 47.4%
Source: National Assn. of Purchasing Management
Construction Spending Drops
Dec., ‘91: 407.4
Nov., ‘91: 408.4
Dec., ‘90: 421.3
Source: Commerce Department
