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Economy in Brief

U.S. Construction Spending in August Unchanged M/M, Down 5.9% Y/Y
by Tom Moeller October 1, 2008

The value of construction put in place was unchanged during August but the decline in July was revised doubled to 1.4%. The decline for August compared to expectations for a slight, 0.5% drop.

Year-to-year, the decline in construction activity remained steady at a -5.9% pace, and the level of activity so far this year has been roughly stable.

The value of nonresidential building activity led the weakness in building activity during August. It fell 0.8% after a downwardly revised 1.1% drop during July. Several categories posted m/m declines, notably transportation which fell 2.1% (+3.9% y/y). Commercial construction fell 0.6% (-4.9% y/y) while spending on health care facilities drpped again, during August by 0.8% (+4.9% y/y). Office construction continued firm and increased 1.0% (10.6% y/y). Lodging spending rose another 2.1% (29.3% y/y) while spending on multi-retail building rose 2.7% (2.1% y/y).

Residential building activity steadied after many months of sharp decline. The steadiness was due to a 9.8% (-8.4% y/y) jump in spending on home improvements. Single-family construction dropped another 4.2% (-41.1% y/y) and that level is off by two-thirds from its peak in early 2006. Building activity on multi-family units fell 4.2% (-4.3% 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.

Public construction continued firm and rose 0.8% (7.7% y/y). The value of construction spending on highways & streets recovered 3.9% (7.3% y/y). (The value of construction on highways & streets is roughly one third of the value of total public construction spending.) Building activity of office space was quite firm and rose 2.0% (24.7% y/y). Spending on health care facilities rose 7.3% (3.6% y/y).

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.

Construction (%) August July Y/Y 2007 2006 2005
Total 0.0 -1.4 -5.9 -2.7 6.3 11.2
Private -0.3 -2.4 -10.5 -6.9 5.5 12.7
  Residential 0.3 -3.9 -28.4 -19.8 1.0 14.9
  Nonresidential -0.8 -1.1 13.0 19.6 16.2 7.8
Public 0.8 1.3 7.7 12.3 9.3 6.2
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