FDM
ECONOMIC WATCH
fdmonline.com
Kim Kennedy
Economics editor
Retail building
still on the rise
●
The current
disconnect
between stores
and housing
is unlikely to
continue for much
longer.
During the 1990s, retail construction (here defined as
the furniture-friendly segments of privately-owned stores and
restaurants) moved in the
same general direction
as housing starts, and
the two were considered to have a close
relationship since
retail was typically
the “second tier”
of construction
following the start
of a new housing development. In the new
millennium, however,
the relationship between
housing and retail construction has become more ambiguous.
From 2000-2005, the housing market
climbed 32 percent thanks to a precipitous decline in interest rates (the
Fed’s effort to stave off a recession) and
the strong rise in home prices (which
lower rates engendered). Housing starts
reached the all-time high of 2.068 mil-
lion units in 2005. We now recognize
that this peak was caused by an
investor-driven bubble that
quickly began to deflate
in 2006. From the 2005
peak through 2007,
housing starts fell 35
percent — wiping out
the previous gains
and bringing starts
down to their lowest
level since 1995.
Retail construction
spending has yet to
see any effect of the
housing downturn.
Effects of recession
By contrast, the reces-
sion at the start of the new
millennium caused the dollar value
of retail construction to dip 7 percent
from 2001-2002 and then to remain at
that level in 2003 when the start of the
Iraq war froze business confidence and
The link between retail and housing
40,000
2,500
35,000
2,250
30,000
2,000
25,000
1,750
20,000
1,500
●
15,000
10,000
1,250
1,000
1993 1995 1997 1999 2001 2003 2005 2007
Stores & restaurants (mil$) Housing starts (thous units)
Rather than ebbing with the downturn in the housing market, retail construction continued to soar
in 2006 and 2007, bringing the value of construction to $38.2 billion.
