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Economy in Brief

Strong U.S. Residential Construction in October
by Gerald D. Cohen  December 1, 2020

• Construction spending increased 1.3% in October with net upward revisions to previous two months.

• Residential jumps 2.9%; continued weakness in nonresidential.

• Public increases for first time since May.

• Total spending now just 0.2% from February peak.

The value of construction put-in-place increased a greater-than-expected 1.3% in October (3.7% year-on-year). The Action Economics Forecast Survey anticipated a 0.8% gain. Spending in August and September were revised to 2.0% and -0.5% respectively from 0.8% and 0.3%. This leaves the level of construction down just 0.2% since its February peak (see upper right hand chart for a comparison to previous cycles).

In the revised third quarter GDP report released last week private construction spending (nonresidential + residential) added 1.70 percentage points from GDP growth. Today's data points to an upward revision to that figure and a healthy start to Q4.

Private construction increased 1.4% in October (3.7% y/y). Residential construction jumped 2.9% (14.5% y/y) driven by strong gains in both single and multifamily dwellings up 5.6% (13.3% y/y) and 1.2% (18.4% y/y) respectively. Home improvement was unchanged (14.6% y/y). Nonresidential private construction decreased 0.7% in October (-8.2% y/y), the fourth consecutive monthly decline. All four of the largest sectors – power, commercial, office, and manufacturing – were down.

Public construction rose 1.0% in October (3.7% y/y), the first gain since May. Nonresidential, which makes up 97% of public construction, grew 1.0% (3.2% y/y), with the two largest sectors road and school building increasing after generalized declines since February. These sectors are down 10.4% and 2.9% respectively from February levels. If not offset by federal government support, the drop in state and local government revenues resulting from the COVID-related hole in economic activity will likely lead to continued 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, %) Oct Sep Aug Oct Y/Y 2019 2018 2017
Total 1.3 -0.5 2.0 3.7 2.4 4.2 4.6
  Private 1.4 -0.4 3.2 3.7 0.8 4.0 6.1
    Residential 2.9 0.6 6.9 14.5 -2.4 3.4 12.4
    Nonresidential -0.7 -1.7 -1.3 -8.2 4.5 4.8 -0.7
  Public 1.0 -0.7 -1.6 3.7 7.8 4.6 -0.1
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