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Economy in Brief

Strong Growth in U.S. Construction in August; Meaningful Upward Revisions to Previous Months
by Gerald D. Cohen  October 1, 2020

• Construction spending increased 1.4% in August with June and July now showing healthy gains.

• Residential jumps 3.7%; continued weakness in nonresidential.

• The 2.0% decline in construction since February looks similar to previous recessions.

The value of construction put-in-place increased a greater-than-expected 1.4% in August (2.5% year-on-year). The Action Economics Forecast Survey anticipated a 0.7% gain. Spending in June and July were revised to 1.0% and 0.7% respectively from -0.5% and 0.1%. This leaves the level of construction down just 2.0% since its February peak, which in contrast to consumer spending, is similar to previous recessions.

In the revised second quarter GDP report released this week private construction spending (nonresidential + residential) subtracted 2.71 percentage points from GDP growth. Today's data points to a healthy positive contribution in Q3.

Private construction increased 1.9% in August (1.5% y/y). Residential construction jumped 3.7% (6.7% y/y) driven by strong gains in both single family and home improvement, up 5.5% (2.9% y/y) and 3.0% (11.2% y/y) respectively. Multifamily edged down 0.1% (+8.9% y/y). Nonresidential private construction decreased 0.3% in August (-4.3% y/y) with the three of the four largest sectors -- commercial, office and power -- down. Manufacturing grew 2.2% (-4.6% y/y).

Public construction ticked up 0.1% (5.5% y/y) with nonresidential, which makes up 97% of public construction, growing 0.2% (4.8% y/y); the difference is only 0.02 percentage points when rounded to two decimal places. The two largest sectors road and school building showed healthy gains after two months of large declines. 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. The expectations reading is in the AS1REPNA database.

Construction Put in Place (SA, %) Aug Jul Jun Aug Y/Y 2019 2018 2017
Total 1.4 0.7 1.0 2.5 2.4 4.2 4.6
  Private 1.9 1.3 1.7 1.5 0.8 4.0 6.1
    Residential 3.7 2.6 2.6 6.7 -2.4 3.4 12.4
    Nonresidential -0.3 -0.2 0.7 -4.3 4.5 4.8 -0.7
  Public 0.1 -1.2 -0.9 5.5 7.8 4.6 -0.1
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