US: Construction Spending

Wed Jan 03 09:00:00 CST 2018

Consensus Consensus Range Actual Previous Revised
Construction Spending - M/M change 0.6% -0.3% to 0.8% 0.8% 1.4% 0.9%
Construction Spending - Y/Y change 2.4% 2.9% 3.4%

Construction spending rose a strong 0.8 percent and showed broad strength in November. Spending on residential construction rose 1.0 percent led by a very welcome 1.9 percent rise for single-family homes where inventories in the sales market have been thin. Home improvements also show strength, up 0.7 percent in the month. Private nonresidential spending rose 0.9 percent and was led by office construction which jumped 5.5 percent in the month. Spending on public construction was mixed with the educational category up 3.8 percent but highways and streets down 0.8 percent.

Year-on-year rates highlight the strength of single-family construction, up 8.9 percent to more than offset a 1.7 percent decline in multi-family units. Home improvements show a very strong 9.8 percent year-on-year increase. The strength on the residential side contrasts with year-on-year weakness in private nonresidential spending which is in the negative column at minus 3.1 percent. Educational building was up a yearly 12.0 percent in November offset by highways and streets which were down 6.3 percent. Federal construction spending posted a modest 1.7 percent year-on-year rise with state and local spending up 1.8 percent.

The residential side of this report joins a tide of rising tide of favorable data on the housing sector which, like manufacturing, appears to have accelerated into year end which will be a positive for fourth-quarter GDP and points to momentum for first-quarter GDP.

Market Consensus Before Announcement
Rebounds in private nonresidential as well as public building were the highlights of October's 1.4 percent jump in construction spending. Residential spending, which had been leading this report, has been mixed recently. Forecasters are calling for only limited give back for November's headline where the consensus gain is a solid 0.6 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.