U.S. Construction Spending Increases Modestly

There's no real upward momentum driving the recent gains in construction spending, but it seems that an interim stabilization of earlier declines occurred this Spring. How long it will last is the question. For the second consecutive month the value of construction put-in-place unexpectedly rose; during April by 0.8% after a little-revised 0.4% March uptick. The gains followed declines ranging from 2% to 4% during each of the prior four months. Consensus expectations had been for a 1.6% April drop.

Another strong gain in the value of nonresidential building activity paced the April surprise. The 1.8% rise followed a 2.6% March increase. Nevertheless, the y/y gain decelerated to 2.0% following double-digit growth during each of the prior three years. Much of April's upside surprise was due to a 2.4% increase in the lodging category. Regardless, spending in this area has turned negative y/y following gains ranging between 30% and 60% during each of the prior three years. Elsewhere, office construction continued lower (-17.8% y/y) as did building in the commercial (-25.4% y/y), educational (-4.8% y/y) and amusement & recreation sectors (-18.0% y/y).

Residential building activity also bounced back by all of 0.7% during April. Nevertheless, it was still off by one-third over the last year and by two-thirds from the 2006 peak. Notably hard hit has been single-family construction activity which ticked up 0.7% after falling by three-quarters since 2006. Building activity on multi-family units fell 2.6% during April (-17.4% y/y) but spending on improvements rose 8.9% (-13.8% y/y).

In contrast to the private sector gains, public construction dipped 0.6% during April; and the recession's effect on tax revenues lowered the year-to-year growth to 3.3% from its 2007 peak of 18.6%. The value of spending on transportation facilities fell 4.6% year-to-year while spending on highways & streets inched up just 0.2% y/y. The value of construction on highways & streets is roughly one-third of the value of total public construction spending.

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 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.

The construction put-in-place figures are available in Haver's USECON database.

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