Monday, May 14, 2012
Wells Fargo Nonresidential Outlook
Nonresidential construction posted a surprising weak performance during the first quarter, with outlays tumbling at a 12.0 percent annual rate. Most of that decline, however, was due to a sharp pullback in natural gas exploration and production, reflecting the huge buildup in natural gas inventories and a sharp drop in natural gas prices that occurred during the quarter. Several other categories also posted declines, including office, retail, power, lodging, and amusement and recreation. Despite the large drop in nonresidential spending during the first quarter, we remain somewhat optimistic that nonresidential construction will make a positive contribution to economic growth in the coming quarters. The sharp drop in natural gas exploration and production is a bit of an aberration, and oil exploration and production remains exceptionally strong. A huge backlog of energy and power projects also remains in place.