US: Construction Spending

Mon Aug 03 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
Construction Spending - M/M change 0.6% 0.3% to 1.6% 0.1% 0.8% 1.8%
Construction Spending - Y/Y change 12.0% 8.2%

Held back by a slight and unexpected decline in single-family homes, construction spending inched only 0.1 percent higher in June. Spending on new single-family homes slipped 0.3 percent in June following gains of 0.5 percent and 1.0 percent in the prior two months. Showing much greater strength are multi-family units, up 2.8 percent in June following prior gains of 1.3 and 3.4 percent. Year-on-year, single-family homes are up a very strong 12.8 percent while multi-family is up 23.7 percent.

The biggest drag to June comes from the private non-residential category which fell 1.3 percent reflecting sweeping monthly declines for offices, commercial structures, factories along with power and transportation spending. On the plus side were construction for highways and education.

Housing permit data point to strength ahead for single-family construction spending along with continued standout strength for the multi-family category. But the decline on the non-residential side does underscore weakness right now in business investment. But taken together, total spending is still up a very constructive 12.0 percent year-on-year and the second-half outlook is still positive.

Market Consensus Before Announcement
Construction spending is expected to rise 0.6 percent in June, getting a boost from the residential component where starts and permits have been surging. A headline gain would follow May's 0.8 percent rise and would boost the outlook for both construction and for new home sales which fell back suddenly and dramatically at the outset of summer.

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.