U.S. Construction Spending Down in May, 2008 Leveled

The value of construction put in place fell 0.4% during May which was about as-expected.The decline followed a revised 0.1% April dip but data back to 2005 were revised; 4Q and 1Q sharply lower. The y/y decline of 6.0% was the weakest since 1991 though this year the level of activity has leveled out.

Lower residential building activity repeated its April performance and fell 1.6%. Since its peak it has fallen by more than one-third. Single-family construction paced that decline with a 3.4% May drop and the level is off by more than one-half from the early-2006 peak level. Building activity on multi-family units edged up 0.1% (-9.5% y/y) but since the late-2006 peak activity is down 20%.

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 nudged up 0.2% after two months of 1.6% gain. Lodging spending surged again, in May by 3.2% (42.0% y/y). Spending on educational buildings rose 0.4% (18.3% y/y) and health care activity dipped for the second month, by 0.3% in May but it was still up 8.5% y/y. Office construction activity nudged up 0.3%(16.7% Y/Y) but multi-retail building eased 0.8% (+1.9% y/y).

Public construction recouped the prior month's dip and rose 0.4%. Spending on office structures has been quite firm and rose another 1.6% (29.8% y/y) while growth in public health care facilities rose 0.8%. The strong y/y gain here of 8.0% follows 25.4% growth last year. The value of construction spending on highways & streets retraced the prior month's increase and fell 0.7% (5.2% y/y). (The value of construction on highways & streets is roughly one third of the value of total public construction spending.) Building activity of educational facilities rose 1.8% (6.6% y/y).

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.

Are Inflation Targets Good Inflation Forecasts? from the Federal Reserve Bank of Chicago is available here.