The public construction figures in today's report were largely as expected, with a 0.6% gain in March that followed small gains in January and February of 0.2% and 0.4% respectively. Yet, the figures imply a $0.5 billion downward bump in the state & local component of Q1 government spending in the next GDP report.

Overall, today's construction figures have reversed the pessimistic signal for nonresidential construction implied by prior reports, with gains now evident in February of 0.6% and March of 1.9% following only modest drops of 0.2% in December and 0.1% in January.

This dramatic change in direction has substantially trimmed recession risk, as the earlier reported turn in this measure of business fixed investment was seen as a signal of a broader switch in direction for business spending overall. The turn may still unfold, but there is no longer evidence of it in the official figures beyond a temporary blip in growth for this measure for two months ending in January.

Aside from the good news in today's report, however, the figures still must be seen in the broader context of reflecting continued substantial weakness in residential construction. Declines of recent quarters have reached historic proportions, as the effects of the credit crunch and associated panic in U.S. real estate markets takes its toll. The residential construction declines over the Q4 and Q1 period are the biggest since Q4 of 1981, when the Fed funds rate averaged 13.6%, CPI inflation was near 10%, and GDP contracted at a 4.9% rate.

The previous Q3 rate of decline itself was substantial, as it marked the largest drop since Q3 of 1990, when Iraq invaded Kuwait, the Fed funds rate averaged 5.6%, CPI was in the 5% area, and a flat GDP figure marked the start of the 1990-91 recession.