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Economy in Brief

U.S. Construction Spending Fell Further
by Tom Moeller November 3, 2008

The value of construction put in place fell 0.3% during September. That reversed an August rise which was revised up slightly and the September decline was less than expectations for a 0.8% drop.Year-to-year, the decline in construction activity remained steady at a -6.6% pace.

A drop in the value of residential building activity led the September decline in overall construction. The 1.3% m/m fall reversed most an August increase and it was led by a 4.7% (-41.3% y/y) drop in single-family construction, off by two-thirds from its peak in early-2006. Building activity on multi-family units reversed nearly half of the August decline with a 2.7% (-1.7% y/y) rise while spending on improvements added to an August increase, up 2.4% m/m (-6.6% 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 recovered 1.2% after an August decline. A 4.4% (5.7% y/y) rise in the educational category led the increase while airport building rose by nearly one-half. Increases here were offset by a 2.3% (-11.3% y/y) decline in the multi-retail category. Spending on health care facilities inched up 0.1% (4.5% y/y) while office construction increased 1.7% (7.4% y/y).

Public construction reversed its August gain with a 1.3% decline. The value of construction spending on highways & streets led the weakness with a 1.5% drop (+1.7% 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 continued firm and rose 1.6% (34.4% y/y) but spending on health care facilities fell 3.5% (+4.0% 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 (%) September August Y/Y 2007 2006 2005
Total -0.3 0.3 -6.6 -2.7 6.3 11.2
Private 0.1 -0.1 -10.3 -6.9 5.5 12.7
  Residential -1.3 1.9 -27.7 -19.8 1.0 14.9
  Nonresidential 1.2 -1.6 11.4 19.6 16.2 7.8
Public -1.3 1.3 3.8 12.3 9.3 6.2
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