US: Construction Spending

Wed Apr 01 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
Construction Spending - M/M change 0.2% -0.8% to 1.0% -0.1% -1.1% -1.7%
Construction Spending - Y/Y change 2.1% 1.8% 1.4%

Construction spending unexpectedly dipped 0.1 percent in February after falling 1.7 percent in January. Market expectations were for a 0.2 percent increase.

February's decrease was led by public outlays which dropped 0.8 percent. Private nonresidential construction spending rebounded 0.5 percent. Private residential spending slipped 0.2 percent.

On a year-ago basis, total outlays were up 2.1 percent in February compared to 1.4 percent in January.

Adverse weather may be still affecting construction data. There is a chance of a normal weather rebound with warmer spring weather. But until later numbers come in, GDP growth estimates are likely being bumped down. Still, rebound data could send estimates up.

Market Consensus Before Announcement
Construction spending declined 1.1 percent in January after gaining 0.8 percent the month before. 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.

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.