Spending on U.S. construction projects unexpectedly rose in March for the first time in six months as increases in commercial and government projects overshadowed an ongoing drop in home building.
The 0.3 percent gain followed a revised 1 percent drop the prior month, the Commerce Department said today in Washington. The advance in non-residential projects was led by building of power plants, hotels and factories.
Manufacturing increased from $6,291 to $6,904. This is a particularly interesting number especially in light of the record low level of capacity utilization.
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This months manufacturing number is the highest reading in 5 months and is 65% higher than the same month last year. That's simply remarkable
In addition, total non-residential construction increased which is also interesting considering the market for commercial real estate is down:
AMERICANS IN THE PAST TWO YEARS have been closely watching residential real estate, as TV commentators breathlessly relate each downward tick in home prices and upward move in foreclosures. But all the while, another important part of the real-estate market has been quietly cratering, all but ignored by the general press. Since peaking in early 2007, the value of the nation's commercial property has fallen an estimated 30% to 40%.
You can get a good idea of the pain being suffered by looking at an index of real-estate investment trusts, the publicly traded entities that investors use to play the commercial real-estate sector. The MSCI REIT Index fell 77% from a high of 1233 in February 2007 to the low of 287 hit in March. Since then, it has rebounded 45%, to 420, as investors seek opportunities and the economy seems to be improving.
But the commercial-property sector remains fraught with peril. Some REITs will be strong enough to snap up buildings at bargain prices, while other REITs may go bust or need to raise gobs of new equity to bolster their debt-heavy balance sheets. The commercial real-estate problem has become a focus of federal regulators in recent weeks as they stress-tested the 19 largest U.S. banks to see where losses could pop up if the economy, rather than recovering, worsens.
Why has the value of REITs tumbled an average of 65%, while the value of their properties has slid more like 35%? REITs tend to rely on borrowed money. That boosted profits in the good times, from 2002 to 2007, but has magnified problems ever since.
Consider the following REIT graphs from Prophet.net. All have the same caption: prices are near record lows on high volume:
The above graphs are far more consistent with the year over year number:
