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Economy in Brief

U.S. Construction Spending Down in October, But Stabilizing?
by Tom Moeller November 30, 2007

The value of construction put in place fell again October. The 0.8% decline followed a modest 0.2% uptick during September but the three month growth in activity has stabilized at -1.0% (AR), an improvement from the double digit rate of decline last Autumn.

Residential building dropped another 2.0% m/m and the three month change was -17.2% (AR), a stable rate of decline since the middle of last year. Building of new single family units, however, showed no sign of stabilizing or bottoming and produced a 4.0% (-26.4% y/y) fall m/m in October. To the upside, spending on improvements gained 0.7% (5.1% y/y) and the three month growth rate shot up to 23.5% (AR).

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 fell slightly for the first decline in about one year. Three month growth remained stable, however, at a positive 16.0% (AR). The 1.2% rise in office construction (20.3% y/y) lifted three month growth to 44.7%, and multi-retail building activity rose 1.6% (12.6% y/y). The shortfall in October nonresidential activity was due partly to a modest 0.1% (11.8% y/y) uptick in commercial construction which followed several months of little or negative change. Also, the 1.8% (20.9 y/y) rise in educational facility building followed two months of just slight increase.

Strength in public construction spending was evident in a 0.8% October rise and the firm three month growth rate of 12.3% was stable. Construction on highways & streets rose 0.8% (9.2% y/y) after two months of double digit gain. The value of construction on highways & streets is nearly one third of the value of total public construction spending. Construction spending on education again was firm and grew 2.1% (18.2% 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.

  October September Y/Y 2006 2005 2004
Total -0.8% 0.2% -0.6% 5.6% 10.7% 11.0%
Private -1.4% -0.1% -4.9% 4.7% 12.0% 13.8%
  Residential -2.0% -1.1% -16.2% 0.5% 13.7% 18.7%
  Nonresidential -0.5% 1.5% 17.5% 15.2% 7.8% 3.8%
Public 0.8% 1.2% 14.6% 9.2% 6.2% 1.7%
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