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Economy in Brief

U.S. Construction Falters
by Gerald D. Cohen  July 1, 2020

• Construction spending dropped 2.1% in May with downward revisions to previous months.

• The 5.9% decline in construction since February looks closer to previous recessions than many other economic statistics.

The value of construction put-in-place unexpectedly fell 2.1% in May (+0.3% year-on-year). The Action Economics Forecast Survey anticipated a 1.0% gain. Spending in April and March were revised down to -3.5% and -0.3% respectively from -2.9% and unchanged. Since the February peak in economic activity construction spending has fallen 5.9%, which looks closer to previous recessions than many other economic statistics.

In the revised first quarter GDP report released last week private construction spending (nonresidential + residential) added 0.72 percentage point to GDP growth. Today's data points to a slight downward revision to Q1 and a meaningful decline in Q2.

Private construction fell 3.3% in May (-1.2% y/y). Private residential construction dropped 4.0% (+0.7% y/y) driven by an 8.5% collapse in single family (-4.4% y/y). Multifamily rose 2.3% (-5.6% y/y) while improvements edged up 0.1% (11.5% y/y). Nonresidential private construction declined 2.4% in May (-3.4% y/y) with the four largest sectors -- commercial, manufacturing, office and power -- all down.

Public construction increased 1.2% (4.7% y/y) with nonresidential, which makes up 98% of public construction, up the same amount (4.2% y/y). The two largest sectors road and school building increased. If not offset by federal government support, the drop in state and local government revenues resulting from the COVID related collapse in economic activity will likely lead to substantial weakness in public construction.

The construction spending figures, some of which date back to 1946 can be found in Haver's USECON database. Mortgage interest rates and loan applications from the Mortgage Bankers Association are in the SURVEYW database and the expectations reading is in the AS1REPNA database.

Construction Put in Place (SA, %) May Apr Mar May Y/Y 2019 2018 2017
Total -2.1 -3.5 -0.3 0.3 2.4 4.2 4.6
  Private -3.3 -3.8 -1.1 -1.2 0.8 4.0 6.1
    Residential -4.0 -5.1 -0.8 0.7 -2.4 3.4 12.4
    Nonresidential -2.4 -2.3 -1.5 -3.4 4.5 4.8 -0.7
  Public 1.2 -2.7 2.3 4.7 7.8 4.6 -0.1
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