US: Construction Spending


Tue Dec 01 09:00:00 CST 2015

Consensus Consensus Range Actual Previous
Construction Spending - M/M change 0.6% 0.4% to 1.8% 1.0% 0.6%
Construction Spending - Y/Y change 13.0% 14.1%

Highlights
Construction is one of the highlights of the 2015 economy with spending up a solid 1.0 percent in October for the best rate since May. Despite mixed signals from the housing sector, spending on residential construction is very solid, up 1.0 percent in October for a seventh straight gain and all of them convincing. Year-on-year, residential construction is up 16.6 percent vs 13.0 percent for total spending.

The monthly gain in the residential component is led by the key subcomponent of single-family homes, up a very strong 1.6 percent for a seventh straight gain. New multi-family homes, which have been leading the residential component all year, rose 1.4 percent. And these gains are not tied to remodeling which dipped slightly in the month.

Private non-residential spending rose 0.6 percent in October with the year-on-year rate at plus 15.3 percent. Strength here is led by outsized gains for manufacturing that are offset in part by weakness in the power and especially the commercial subcomponents.

Public spending is holding down totals with educational construction unchanged in the month though Federal spending did jump, up 19.2 percent for the largest gain in nine years that takes the year-on-year rate to plus 10.7 percent. This is the best rate among the public subcomponents. The highway & street subcomponent was also very strong in the month, up 1.1 percent for what is still a comparatively soft year-on-year gain of 6.0 percent.

The housing data in this report are not only favorable but the pop higher in related permits, in data previously released with the housing starts & permits report, hints at further gains ahead. This report points to a solid fourth-quarter contribution from construction.

Market Consensus Before Announcement
Construction spending has been very solid with residential spending having posted six months of strong gains. The Econoday consensus sees more for the October report, calling for a strong 0.6 percent rise with the high estimate all the way at plus 1.8 percent.

Definition
The dollar value of new construction activity on residential, non-residential, and public projects. Data are available in nominal and real (inflation-adjusted) dollars.



Description
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.