|Construction Spending - M/M change||0.5%||0.1% to 1.2%||0.8%||2.2%||2.1%|
Construction spending rose a solid 0.8 percent in May, safely above the Econoday consensus for a 0.5 percent gain. April is revised fractionally lower to a 2.1 percent jump but the March gain, in a special positive, was revised sharply higher, to 1.3 percent from 0.5 percent.
Areas of special strength include manufacturing facilities, up 6.2 percent in the month for a fourth straight outsized gain that belies declines in other measures of business investment.
Turning to the key residential construction component, growth was less strong, at a moderate 0.3 percent for a second straight month. But year-on-year rates are still very solid with total spending on residential construction up 7.8 percent. Spending on single-family homes is up 11.2 percent year-on-year.
Recent spikes in housing permits, not to mention gains in new home sales, point to accelerating gains for residential construction in the months ahead. Construction is quickly shaping up as one of the lead sectors of the 2015 economy.
Market Consensus Before Announcement
Construction spending in May is expected to add to April's 2.2 percent jump, with the Econoday consensus at a solid plus 0.5 percent. Watch the residential construction component, up 0.6 percent in April, for signs on the new home sector.
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.
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