US: Construction Spending

Thu Feb 01 09:00:00 CST 2018

Consensus Consensus Range Actual Previous Revised
Construction Spending - M/M change 0.5% -0.3% to 0.8% 0.7% 0.8% 0.6%
Construction Spending - Y/Y change 2.6% 2.4% 1.5%

Construction ended a modest year on a strong note, rising 0.7 percent in December to lift the year-on-year gain by just more than a point to 2.6 percent. The strength has been in housing where residential spending rose 0.5 percent in the month for a yearly and very strong 6.2 percent increase. All components -- single-family, multi-family, home improvements -- have been solid contributors.

Holding down the results has been private nonresidential spending which did rise 1.1 percent in December though the yearly rate is still in the negative column at minus 2.5 percent. Spending on office construction fell 5.0 percent in the year with manufacturing and power both falling just over 10 percent. Commercial building was a positive at a 5.1 percent gain with transportation, the smallest of these subcomponents however, up an outsized 36 percent on the year.

Public spending was a positive but this is a small component compared to housing and private nonresidential. Federal spending rose 5.3 percent on the year with state and local up 4.3 percent.

The housing side of this report is positive but needs to accelerate even further to feed supply to what has been a housing sector starved of new homes and condos.

Market Consensus Before Announcement
Construction spending rose a strong and broad-based 0.8 percent in November with December's call at a gain of 0.5 percent. November spending on residential construction rose 1.0 percent led by a 1.9 percent rise for single-family homes in what promises to provide badly needed supply to a depleted market. Home improvements also showed strength, up 0.7 percent in the month, with private nonresidential spending up 0.9 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.