Construction: What's the Outlook for ETFs? | ETF Trends

The weak housing market and economy was further supported by the decrease in construction spending and the fall in the stocks and exchange traded funds (ETFs) that track the sector.

The U.S. Commerce Department reported that construction spending dropped 1.2% in October, a far higher decline than the 0.9% analysts expected.  This weakness was lead by the drastic drop in homebuilding and residential construction falling 3.5% and nonresidential construction falling by 0.7%.

The numbers weren’t all bleak: during the same period, government projects increased 0.7%, state and local construction increased 0.3% and federal construction activity was up 5.5%, stated the Business Review.  This is a strong signal that there is trouble ahead.

To add fuel to the fire, developers put a halt on office building projects because of weak demand, tight credit markets and overall financing problems. Hiring in the industry is forecast to decline for the next six to 12 months, states the Associated Press.

The last nail in the coffin came from the Institute for Supply Management’s index of manufacturing, which dipped down to 36.2, a number indicative of a contraction, a 26-year low, and much worse than analysts had expected. The official news that the United States has been in a recession since December of 2007 has further contributed to stress.

PowerShares Dynamic Build & Construction (PKB): is down 44% year-to-date.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.