US: Construction Spending

February 1, 2017 09:00 CST

Consensus Consensus Range Actual Previous
Construction Spending - M/M change 0.2% -0.4% to 0.8% -0.2% 0.9%
Construction Spending - Y/Y change 4.2% 4.1%

Construction spending fell 0.2 percent in December but details show welcome gains for housing. Spending on new single-family homes rose 0.5 percent in the month with multi-family spending up 2.8 percent. A negative on the residential side, however, is a 0.6 percent dip in home improvements.

More negative pull comes from public construction spending which fell a sharp 1.7 percent in the month. Educational spending fell 2.2 percent with highways & streets down 0.6 percent. Private nonresidential categories are mixed with total spending for this component unchanged in the month.

Spending on new home construction will have to improve further to ease the very tight supply in the new home market. Watch for construction payrolls, one possible highlight of Friday's employment report.

Market Consensus Before Announcement
Construction spending had been flat through most of 2016 but appeared to pick up steam late in the year. Non-residential spending held mixed but residential spending on single-family homes jumped a combined 2.6 percent in October and November. December's single-family strength, however, is in question given the month's weakness in single-family starts (data released in the housing starts report). The Econoday consensus for December construction spending calls for sharp slowing, to a 0.2 percent gain vs November's 0.9 percent rise.

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.