US: Construction Spending

Mon Jul 02 09:00:00 CDT 2018

Consensus Consensus Range Actual Previous Revised
Construction Spending - M/M change 0.6% 0.3% to 1.2% 0.4% 1.8% 0.9%
Construction Spending - Y/Y change 4.5% 7.6% 5.0%

Strength in housing is leading the construction sector, making for a respectable 0.4 percent rise in overall construction spending during May. Residential spending rose 0.8 percent led by a 1.6 percent increase for new multi-family units, a 0.9 percent rise in home improvements, and a very useful 0.8 percent increase in new single-family homes. Year-on-year, residential spending is up a very strong 6.6 percent vs 4.5 percent for overall spending.

Spending overall is being held back by non-housing with private nonresidential spending down 0.3 percent in the month for only a 1.8 percent rise on the year. Manufacturing is the weak spot here, down 2.4 percent on the month and down 11.0 percent on the year to belie indications of strength in business investment. Office spending, however, is a positive, up 1.4 percent on the month for a 9.7 percent year-on-year gain.

Public spending is mixed with the educational component up on the month but only 0.4 percent higher on the year with highways & streets down on the month but still up 5.8 percent on the year. Federal spending is down 5.5 percent on the year with state & local spending, a much larger category in this report, up a solid 5.6 percent.

Spots of weakness aside, gains in housing and particularly single-family homes are major positives, pointing to strength for new home sales and also construction employment with related payroll data to be posted in Friday's employment report. Note that today's report includes annual revisions and that revisions to the two prior months are mixed with April revised sharply downward, now at plus 0.9 percent, but March revised sharply upward to a dip of 0.9 percent.

Market Consensus Before Announcement
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. Construction spending, often volatile month to month, is expected to rise a very constructive 0.6 percent in May in what would be a positive for second-quarter GDP.

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.