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Economy in Brief

U.S. Construction Spending Decline Fifth in Six Months
by Tom Moeller December 1, 2006

During October, the value of construction put in place fell 1.0% after a downwardly revised 0.8% drop in September. It was the fifth decline in the last six months. Consensus expectations had been for a 0.2% dip during October.

Residential building cratered 1.9%. This seventh consecutive monthly decline lowered the level of construction activity 10.2% below last December's peak. The 3.9% (-17.2% y/y) slide in new single family building was the largest, but only by a little, m/m drop during the last fifteen years. Spending on improvements made up for some that lost work and rose 1.5% (4.9% y/y).

During the last twenty years there has been an 84% correlation between the q/q change in the value of residential building and its contribution to growth in real GDP.

Nonresidential building slipped for the second consecutive month after a downwardly revised 0.6% September decline. The 0.7% October dip was notable for a 3.1% (+13.5% y/y) drop in manufacturing. Office construction also fell 1.6% (+26.7% y/y) but construction in the lodging sector continued to barrel ahead, by 9.0% (68.1% y/y). Multi-retail building also remained firm and posted a 1.3% (35.8% y/y) gain.

Public construction spending increased 0.8% led by a 4.0% (11.3% y/y) jump in transportation spending. Highways & streets, nearly one third of the value of public construction spending, ticked up 0.3% (15.7% y/y).

These more detailed categories represent the Census Bureau’s reclassification of construction activity into end-use groups. Finer detail is available for many of the categories; for instance, commercial construction is shown for Automotive sales and parking facilities, drugstores, building supply stores, and both commercial warehouses and mini-storage facilities. Note that start dates vary for some seasonally adjusted line items in 2000 and 2002 and that constant-dollar data are no longer computed.

Construction Put-in-place October September Y/Y 2005 2004 2003
Total -1.0% -0.8% 0.5% 10.7% 11.5% 5.6%
Private -1.5% -1.1% -2.0% 12.0% 14.3% 6.4%
  Residential -1.9% -1.4% -9.4% 13.9% 18.6% 12.8%
  Nonresidential -0.7% -0.6% 16.4% 7.4% 5.3% -4.8%
Public 0.8% 0.2% 9.9% 6.2% 2.8% 2.9%
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