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Economy in Brief

U.S. Construction Spending Off Sharply Again
by Tom Moeller December 1, 2008

The October value of construction put in place fell 1.2% during October. The decline followed a slight September downtick which was revised to be shallower than the initial report. Consensus expectations had been for a 0.9%. Construction activity continued to decline 4.6% y/y.

Residential building activity again led the latest monthly decline with a 3.5% drop and activity remained off by a quarter from last year. Single-family construction activity fell 4.6%, off by two-thirds from its peak in early-2006. Building activity on multi-family units slipped 0.3% (-1.4 y/y), off roughly 20% from the early 2007 peak. Spending on improvements fell 3.2% m/m but still was up slightly versus last year.

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 slipped 0.7% after a little-revised 1.1% September increase. Spending on office construction did rise 1.1% but the y/y gain of 4.4% is much reduced from the near 20% growth of the prior two years. Building in the multi-retail sector rose 7.5% but the y/y decline of 7.2% compares to a 17% gain last year. Spending on health care facilities reversed a September increase and fell 1.1% (+3.9% y/y).

Public construction reversed a September decline and rose 0.7%. The value of spending on educational facilities rose a firm 1.2% (10.1% y/y) but the value of construction spending on highways & streets fell for the second month by 0.9% (+6.3% y/y). The value of construction on highways & streets is roughly one-third of the value of total public construction spending.

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 (%) October September Y/Y 2007 2006 2005
Total -1.2 -0.0 -4.6 -2.7 6.3 11.2
Private -2.0 0.4 -8.8 -6.9 5.5 12.7
  Residential -3.5 -0.5 -24.2 -19.8 1.0 14.9
  Nonresidential -0.7 1.1 9.1 19.6 16.2 7.8
Public 0.7 -0.9 7.4 12.3 9.3 6.2
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