US: Construction Spending


Fri Dec 01 09:00:00 CST 2017

Consensus Consensus Range Actual Previous
Construction Spending - M/M change 0.5% 0.4% to 0.8% 1.4% 0.3%
Construction Spending - Y/Y change 2.9% 2.0%

Highlights
It's not housing that drove construction spending up a very sharp 1.4 percent in October but non-residential activity which had been lagging in this report. Spending on private non-residential construction jumped 0.9 percent in the month with strength centered in office construction and transportation construction. Despite the improvement, year-on-year spending on the non-residential side is still negative, at minus 1.3 percent. Public building also had a strong month with educational building up 10.9 percent for a standout year-on-year rate of 14.6 percent. Spending on highways & streets was also strong in October, up 1.1 percent though still down on the year, at minus 8.5 percent.

Residential spending has been leading this report but October was moderate, up 0.4 percent overall and held back by a 1.6 percent decline for multi-units. But home improvements were strong in the month, up 1.4 percent for an 8.7 percent yearly rate. Total residential spending is up a year-on-year 7.4 percent with spending on new single-family homes up a very significant 8.9 percent.

But new homes aside, overall construction spending is up only 2.9 percent which is a very moderate total that evokes this week's Beige Book where modest-to-moderate still dominated the description of the economy.

Market Consensus Before Announcement
Construction spending has been mixed all year rising 0.3 percent in September with October's consensus increase at 0.5 percent. Nonresidential construction has been the weak link but not residential construction which, with strength centered in single-family homes, has been rising at a nearly double-digit pace.

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.