US: Construction Spending

Fri Jun 01 09:00:00 CDT 2018

Consensus Consensus Range Actual Previous
Construction Spending - M/M change 0.8% 0.5% to 2.0% 1.8% -1.7%
Construction Spending - Y/Y change 7.6% 3.6%

A rebound in multi-family units helped drive construction spending 1.8 percent higher in April to fully reverse the prior month's 1.7 percent decline. Spending on multi-family units rose 3.6 percent in the month following March's 4.3 percent decline in a gain, however, that can't overshadow no change for spending on single-family homes. But home improvements were a big positive rising 0.7 percent in the month.

Non-housing data are mixed with private nonresidential, led by transportation and power, up a strong 0.8 percent but with highways & streets down 1.0 percent.

This report is often very volatile making year-on-year readings useful to gauge trends. And there is clear strength here, with total spending up 7.6 percent including a very strong 9.6 percent gain for single-family homes that puts April's no change in perspective. Housing is in short supply which has been holding down home sales and the question for the sector is whether builders can pick up their pace to meet demand.

Market Consensus Before Announcement
Construction spending is often a very volatile report, swinging lower in March and expected to swing back higher in April, at a consensus 0.8 percent gain. Spending on single-family homes fell back in March with non-residential spending holding steady.

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.