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Economy in Brief

U.S. Construction Spending Fell in July
by Tom Moeller September 2, 2008

The value of construction put in place fell 0.6% during July and that reversed the 0.3% increases during the prior two months. The decline was as-expected.

Year-to-year, construction was down 4.8% but the level of activity so far this year continued roughly stable.

As in prior months, however, residential building activity continued to decline sharply, by 2.1% in July. Since it's peak it has fallen by just over one half. Single-family construction dropped an even larger 3.7% (-0.9% y/y) in July and that level is off by nearly two-thirds from its peak in early 2006. Building activity on multi-family units ticked up 0.2% (-1.7% y/y) while spending on improvements gave back the June gain and fell 1.0% (-5.5% 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.

The value of nonresidential building activity fell 0.7% after increasing in each month of this year. Despite the latest dip, office construction continued firm and increased 1.7% (13.7% y/y). Lodging spending dipped, however, by 0.1% but it was up by more than one-third from last year's level. Spending on multi-retail building rose 3.1% (4.7% y/y) while spending on health care facilities dipped 0.2% (+6.7% y/y).

Public construction continued firm and rose by 1.4% (8.1% y/y). The value of construction spending on highways & streets fell modestly for the third consecutive month but remained up 6.9% from last year. (The value of construction on highways & streets is roughly one third of the value of total public construction spending.) Building activity of educational facilities surged 2.5% (7.4% y/y) during July.

The more detailed categories of construction 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.

The United States in the International Financial System: A Separate Reality? Resolving Two Puzzles in the International Accounts is yesterday's speech by Fed Governor Randall S. Kroszner and it can be found here.

Regional Variation in the Potential Economic Effects of Climate Change from the Federal Reserve Bank of San Francisco is available here.

Construction (%) July June Y/Y 2007 2006 2005
Total -0.6 0.3 -4.8 -2.7 6.3 11.2
Private -1.4 0.2 -9.2 -6.9 5.5 12.7
  Residential -2.3 -1.4 -27.5 -19.8 1.0 14.9
  Nonresidential -0.7 1.7 16.0 19.6 16.2 7.8
Public 1.4 0.4 8.1 12.3 9.3 6.2
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