03/28/2008 02:46 am ET | Updated May 25, 2011

Morgan Stanley: Recession's Next Victim Is Commercial Construction

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.

Keep Reading