I would have to guess that while non-residential investment is holding up, it is only a matter of time before it starts scaling back as consumer demand slackens.

Not just positive, but increasing too. The structures graph is exceptionally strange. There's the little downturn where you would expect it to be, but then it starts going back up.

"It is possible that the big investment slump in the early '00s has left many markets with too little supply of commercial and office buildings..."

I'm probably locationally biased, but I see a severe excess of these structures in AZ, NV, and CA. Hell, even the parts of NM that I visit seem to be overbuilt.

Anecdotal info from SF Bay Area....

...we've gotten lots of "House for Sale" flyers in our neighborhood over the years, but this was the first week we have ever (7+ years here) received a glossy flyer for a Commercial/Business Building for Sale.

Smells like CRE is rolling over.

The pipeline for non-residential might take longer now as far as getting entitlements and approvals. Maybe more large 30 story type high-rise office building is occurring, which takes longer time to finish than a 3 story building. Regardless, like homebuilders, commercial construction is herdlike, once one project starts 20 others do as well. The result is a quick building boom that ultimately ends in significant oversupply. Once the frenzy ends, building often stops for many years. The current extended lag is mysterious, but the end result will be the same: a crash in commercial building and an end to 14 year boom in jobs for dislocated construction workers.

Neal: What is your state or region, if you don't mind my asking?

Q. Does anyone think that the vast flows of capital into housing are being partially diverted, at least for awhile, into other kinds of construction?

CR, non-residential is not going to hold up because of the retail contraction. I personally date the change to Starbucks' announcement that it would close some stores.

Small retail, and the equipment that goes into those places (especially restaurants) has been a big hunk and chunk of that category recently.

We now have to wait for Dryfly's type of pull-back in mfrg supply chains to take hold.

I'm not sure that non-residential will take a huge fall, but it is doomed to weaken because of the retail situation (banks, restaurants, small shops, large chains) alone.

Again, anecdotally in the SF East Bay, if nothing else there are a number of shuttered former real estate and mortgage offices. Also a lot of churn in small retail; seems like a lot of businesses failing but often (not always) being replaced by another brave soul.

There is a lot of anecdotal evidence that companies all over the world are scaling back technology spending sharply. For example, there was a report on CNBC Asia last night that said Asian companies were cutting back semiconductor equipment budgets for 2008 by 10-20%, compared to last year.

When the Asian tech analysts talk on TV, they don't smile at bad news. I uess nobody from media land taught them how.

They frown. There's been a lot of deep frowns.

The pipeline is still going here - very few high-visibility projects in Phoenix have stopped construction. But there are a lot of them under construction at once, and they will be competing with a lot of other empty space when they finally open. For example, the Engle Homes tower right down the street from me?

Keep in mind, much of the development in central Phoenix is directly or indirectly driven by the voter approved bonds Rich keeps talking about.

CR,et.al. I think Non-Res Investment is actually trending down. It's held up "decently" because investment in Structures has. The latter,IMHO, is doing well on a % basis because it's playing catchup - still - from the last major downturn when it really took a hit. Part of that's the same pipeline commitment problem that homebuilders have. Part of it's lag. BUT.... SW/Eqp is far and away the majority of capex and it's not doing particularly well. Also remember that capex is a derived demand; i.e. reacts to anticipation of future demand based on past consumer spending and will likely decelerate sharply into the year.

Our office building is still 40 percent vacant. It was 70 percent vacant before we moved in, and we got a heckuva deal and cheap/free cubes and office furniture from one of the vacant units (formerly occupied by a mortgate broker, of course.)

There are no business tenants in this building; we're all part of the UC system, plus one nonprofit. And the university, as a rule, doesn't rent for top price.

O-Joe re: inventories

Unfounded speculation: Do inventories normally rise during Q3, and then fall in Q4, due to the holiday shopping season? I recall from my days in semiconductor mfg that we would typically build inventory during Q3.

My anecdote about strip mall emptiness. Our local cheep supermarket built a new building half a mile from the old one with strip mall attached, finished construction last fall about six months after the scheduled date back when they first announced the project. Two of the six units are occupied, one is a hair salon, the other is the ever popular in Utah payday loan place. The other four remain empty and this is a location that has thousands of people coming every day. The old store was remodeled into a sporting goods chain store and two empty spaces.

4th quarter inventories

The company I used to work for would move a lot of inventory every year in q4, especially when their numbers were weak. Why? So the marketing guys could get their volume bonuses.

only problem with that is when you sell 3 quarters worth of inventory in the 4th quarter because you cut your prices to make your quarterly and yearly number to get your bonus, it has a really negative impact on orders in the next 2 quarters.

Still no sign that any of the markets know in advance what the new FFR rate will be! (Not even GS???)

Could it be that the Fed is still arguing about the depth of the cut?

MAB
My BIL in commercial real estate on the east coast confirms that the craziness of the residential RE is/was/still is going on in commercial RE. 115% LTV!!!!
Interesting Times

confirming my suspicions about whats been happening on the REIT stock front the last few days; just heard on CNBC a hedge fund manager saying that with the Fed cutting rates he was positive on REITS due to their dividend yields. Herb Greenberg was also on and asked him if he'd read his piece on CRE this past weekend warning of a plunge. HF manager said "no". Herb just laughed.

i believe we are at the same early stage with REITS as we were with HB's late 2006 when i first started shorting those guys. when the realization hits and that NR investment line starts turning down later this yr is when SRS will start shooting up. now's the time guys.

Sandy also has a good point - our office definitely recognizes the soft economic environment, but the reaction has been to tool-up so we can compete in tougher times.

That's a cool phrase..."tool-up"

It means getting rid of American jobs, right?

Bullish!

I agree with Steve (and others) that the housing slowdown this time is for abnormal factors, so the normal housing-CRE linkage is different. This housing slowdown is a rapid collapse and moves faster than CRE has been able to adapt.
In addition, not all CRE is strip malls. There is a good deal of office, corporate, medical, infrastructure and other work still in progress.

Should be "understand exactly what."
Sheesh

hiker90

look at the XHB. it certainly didn't respect a 50% decline rule. the excesses of CRE parallel RRE and the lending got just as insane >100 LTV's. these are large nuts to carry for developers and as retail and small businesses retreat out go the tenants.

Zigurrat - carload rail has turned and is rising, which is a multi month trend. But intermodal is still dropping, and in fact it is dropping at a faster pace than during last year at this time. We're stacking multi year YoY losses now on intermodal.

For the first 3 weeks of 2008, carloads were up 2%, and intermodal was down 2.7%.

And if you look at what is big in carloads, it is ag products, grains, a recent pop in motor vehicles, and waste and scrap. Sometimes there will be bulges in scrap metal.

In general, rail traffic should be increasing much more than trucking due to the sharp rise in diesel in the fall.

However, the stock market can decline even without economic weakness...

But with a hedge fund industry like we've got today that would take some kind of financial calamity.

No way these guys would let their capital base shrink without waging war.

10 minutes to Wopner.

Misean: Das disparages much of this as the product of bankers creating "complexity for the sake of complexity," trying to wow their clients by inventing more sophisticated-seeming investments.

Is that Satyajit Das, who wrote Traders, Guns, & Money? I recommend reading the book.

When 'derivatives' and 'f******' appear together on every other page, you know someone has written the truth about financial innovation. Be afraid. -- Frank Partnoy, author of FIASCO, re: Traders, Guns, & Money

What's socially acceptable is slitting your own grandma's throat if you have to in order to sell that product.

1/2 point.

the market is like a bunch of monkeys, really. Like this 50bp is really going to make a difference.