US: Construction Spending


Wed Nov 01 09:00:00 CDT 2017

Consensus Consensus Range Actual Previous Revised
Construction Spending - M/M change 0.0% -0.5% to 0.5% 0.3% 0.5% 0.1%
Construction Spending - Y/Y change 2.0% 2.5% 2.3%

Highlights
The non-residential sector gets a downgrade in today's construction spending report where the headline increase, at 0.3 percent in September, nevertheless beats the consensus by 3 tenths. Private non-residential spending, however, fell a steep 0.8 percent following a sharply downward revised 0.7 percent decline in August. Year-on-year, this reading is down 3.8 percent with weakness most evident in manufacturing and office building that offsets gains for commercial building.

The residential side, though unchanged in September, shows much more strength with a year-on-year rise of 9.6 percent. Spending on both new single-family and new multi-family homes actually increased in the month, up 0.2 and 0.6 percent respectively, but spending on home improvements fell back 0.6 percent.

Public spending improved in the month led by a 5.2 percent gain for educational building. Highway & street spending rose 1.1 percent in the month but the yearly decline is still steep at 7.4 percent. Both Federal and state & local spending rose in the month but are down in the low single-digits on the year.

This is a mixed report for what has proven to be an uneven year for the construction and housing sectors.

Market Consensus Before Announcement
Construction spending, mixed all year, rose a solid 0.5 percent in August in a report, however, that also included sharp downward revisions to July. Forecasters see construction spending posting no change in September. Residential spending, led by single-family homes, has been strong this year, in contrast to non-residential spending which is being held down by weakness in highways & streets and public building.

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.