US: Construction Spending

Fri Apr 01 09:00:00 CDT 2016

Consensus Consensus Range Actual Previous Revised
Construction Spending - M/M change 0.2% -0.5% to 0.7% -0.5% 1.5% 2.1%
Construction Spending - Y/Y change 10.3% 10.4%

A 0.5 percent decline for February masks what is otherwise a very solid construction spending report that includes upward revisions and gains for the residential component. January is now revised 6 tenths higher to a gain of 2.1 percent with the residential component moving from unchanged to plus 0.9 percent. New single-family homes now show a 0.5 percent gain for January and a very strong 1.2 percent gain for February. Multi-family homes also show a gain, up 0.9 percent following a 3.6 percent January surge. Year-on-year growth for residential spending is now in the double digits at 10.7 percent.

It's the non-residential component that dragged February's totals lower, down 1.3 percent with weakness in the manufacturing, educational, and highway & street subcomponents. Still, all together, non-residential construction spending, boosted especially by hotels and also offices, is tracking in line with the residential side, at a year-on-year plus 10.6 percent.

Construction spending, along with building strength for construction employment, are isolated but still fundamental positives for the housing sector where sales growth and price appreciation, however, have stalled.

Market Consensus Before Announcement
Construction spending is expected to edge 0.2 percent higher in February in a gain that will hopefully include strength for the residential component which in January opened the year unchanged. It was a burst of spending on highway & streets that fed January's overall gain of 1.5 percent.

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.