US: Construction Spending

Mon Mar 02 09:00:00 CST 2015

Consensus Consensus Range Actual Previous Revised
Construction Spending - M/M change 0.3% -0.3% to 0.6% -1.1% 0.4%
Construction Spending - Y/Y change 1.8% 2.2% 2.2%

Construction outlays declined 1.1 percent in January after gaining 0.8 percent the month before. January was below market expectations which were for a 0.3 percent boost.

January's decrease was led by public outlays which dropped 2.6 percent after rebounding with a 1.7 percent jump in December. Private nonresidential construction spending declined 1.6 percent in January, following a 0.1 percent rise in December. Private residential spending rose 0.6 percent after increasing 0.7 percent in December.

On a year-ago basis, total outlays were up 1.8 percent in January compared to 2.2 percent in December.

Today's report shows softening in the overall construction sector but gains in the housing component. Increased activity in this subcomponent suggests optimism by homebuilders and perhaps also a shortage in supply of new homes on the market. Early data point to a gain in the residential investment component in first quarter GDP and a decline in the nonresidential component.

Market Consensus Before Announcement
Construction spending rebounded 0.4 percent in December after dipping 0.2 percent the month before. December's increase was led by public outlays which rebounded 1.1 percent after dropping 1.8 percent in November. Private residential spending rose 0.3 percent after edging up 0.1 percent in November. Private nonresidential construction spending eased 0.2 percent in December after a 0.8 percent rise the month before.

The dollar value of new construction activity on residential, non-residential, and public projects. Data are available in nominal and real (inflation-adjusted) dollars.

Construction spending has a direct bearing on stocks, bonds and commodities because it is a part of the economy that is affected by interest rates, business cash flow and even federal fiscal policy. In a more specific sense, trends in the construction data carry valuable clues for the stocks of home builders and large-scale construction contractors. Commodity prices such as lumber are also very sensitive to housing industry trends.

Businesses only put money into the construction of new factories or offices when they are confident that demand is strong enough to justify the expansion. The same goes for individuals making the investment in a home.

A portion of construction spending is related to government projects such as education buildings as well a highways and streets. While investors are more concerned with private construction spending, the government projects put money in the hands of laborers who then have more money to spend on goods and services.

On a technical note, construction outlays for private residential, private nonresidential, and government are key inputs into three components of GDP--residential investment, nonresidential structures investment, and the structures portion of government expenditures.

That is why construction spending is a good indicator of the economy's momentum.