US: Construction Spending

Thu Oct 01 09:00:00 CDT 2015

Consensus Consensus Range Actual Previous Revised
Construction Spending - M/M change 0.6% 0.2% to 0.8% 0.7% 0.7% 0.4%
Construction Spending - Y/Y change 13.7% 13.7%

Construction spending is picking up, at plus 0.7 percent in August for a year-on-year gain of 13.7 percent. Construction of single-family homes rose a solid 0.7 percent in the month with continuing gains certain given strength in permits. Multi-family construction, driven by rising rents, jumped 4.8 percent in the month and is up 25 percent year-on-year. The year-on-year gain for single-family homes is lagging but is still very strong at 14.0 percent.

Gains were also posted in private non-residential construction, at 0.2 percent following July's 1.6 percent jump, with gains continuing to be centered in manufacturing in strength that belies other indications of weakness in business investment. Year-on-year, non-residential construction is up 17 percent. Public construction remains subdued with year-on-year gains in related components in the mid-single digits.

For the economy, strength in construction, including strength in new homes, looks to offset not only unevenness in existing home sales but also what appears to be an ongoing breakdown in the factory sector.

Market Consensus Before Announcement
Construction spending in July was very strong and is expected to rise further in August, at a consensus 0.7 percent. July's strength was broad based, including gains for single-family homes and nonresidential construction as well. Housing and construction have been on a moderate rise, but still good enough to contribute to overall economic growth.

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.