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Economy in Brief

U.S. Construction Edges Higher as Residential Strength Mostly Offset by Nonresidential Weakness
by Gerald D. Cohen  September 1, 2020

• Construction spending ticked up 0.1% in July after four consecutive monthly declines.

• Residential jumps 2.1% while public falls 1.3%.

• The 5.3% decline in construction since February looks similar to previous recessions.

The value of construction put-in-place increased a weaker-than-expected 0.1% in July (-0.1% year-on-year). The Action Economics Forecast Survey anticipated a 1.0% gain. Spending in May and June were revised up to -1.3% and -0.5% respectively from -1.7% and -0.7%. This is the first increase in total construction spending since the February peak in economic and construction activity. Since then construction spending has fallen 5.3%, similar to previous recessions.

In the revised first quarter GDP report released last week private construction spending (nonresidential + residential) subtracted 2.82 percentage points from GDP growth. Today's data points to a slight upward revision to Q2.

Private construction increased 0.6% in July (-1.8% y/y). Residential construction jumped 2.1% (+0.5% y/y) driven by strong gains in both single and multifamily, up 3.1% (-3.2% y/y) and 4.9% (6.0% y/y) respectively. Despite news reports of a home improvement boom, improvements declined 0.5% in July (+3.7% y/y) and are down in five of the last six months. Nonresidential private construction decreased 1.0% in July (-4.3% y/y) with the three of the four largest sectors -- commercial, office and power -- down. Manufacturing showed a small gain.

Public construction fell 1.3% (+5.1% y/y) with nonresidential, which makes up 98% of public construction, down the same amount (+4.4% y/y). The two largest sectors road and school building both dropped by roughly 3.0% in July. If not offset by federal government support, the drop in state and local government revenues resulting from the COVID related collapse hole 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, %) Jul Jun May Jul Y/Y 2019 2018 2017
Total 0.1 -0.5 -1.3 -0.1 2.4 4.2 4.6
  Private 0.6 -0.3 -2.5 -1.8 0.8 4.0 6.1
    Residential 2.1 -0.7 -4.1 0.5 -2.4 3.4 12.4
    Nonresidential -1.0 0.1 -0.7 -4.3 4.5 4.8 -0.7
  Public -1.3 -0.9 2.1 5.1 7.8 4.6 -0.1
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