Commercial construction is the recession's next victim, according to Richard Berner, writing in Morgan Stanley's latest Global Economic Forum. The sector is under pressure from all sides: tightening financial conditions (until last week, no commercial mortgage-backed securities [CMBS] had been issued so far this year --the longest such dry spell since October 1990); rising construction costs; weakening demand; and over supply. All of which will have a significant effect on GDP:
A downturn in [commercial construction] activity would represent a significant turnaround from last year's boom: Although nonresidential or structures investment accounted for only 3.4% of (nominal) GDP, the 16% jump in real outlays contributed half a point to overall real GDP growth over the four quarters of 2007. Such a gain -- the sharpest 4-quarter rise since 1984 -- is unsustainable, and we think this economic asset is about to turn into a liability.