US: Construction Spending

Tue Sep 01 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
Construction Spending - M/M change 0.8% 0.2% to 1.4% 0.7% 0.1% 0.7%
Construction Spending - Y/Y change 13.7% 12.0%

Led by strength in single-family homes, construction spending rose 0.7 percent in July while an upward revision to single-family homes added to a sharp upward revision to June, up 6 tenths and also at plus 0.7 percent. Year-on-year, total construction spending was up 13.7 percent in July.

Private residential construction rose 1.3 percent in July with construction spending on single-family homes up 2.1 percent vs a 0.5 percent gain in June that was initially reported at a 0.3 percent contraction. Spending on the more volatile multi-family category, which is much smaller in scale, fell 2.2 percent after spiking 5.5 percent in June. Year-on-year, both categories show robust gains, at 15.8 percent for single-family homes and 21.2 percent for multi-family.

Turning to private nonresidential construction, spending rose 1.5 percent in the month. In gains that belie concerns over weakness in business investment, manufacturing was very strong at plus 4.7 with power and transportation both at plus 2.1 percent in the month. But spending on public construction was negative, at minus 3.0 percent for educational buildings and minus 0.2 percent for highways & streets.

Housing and construction, which are domestic sectors insulated for global volatility, are posting some of the best numbers of any sectors in the economy right now and look to give 2015 substantial support.

Market Consensus Before Announcement
Construction spending is expected to rise a sharp 0.8 percent in August following a very soft 0.1 percent rise in July which was held back by an unexpected decline in single-family homes. Housing starts were up in July which should help spending while non-residential building is expected to bounce back from a June dip.

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.