U.S. Construction Spending Off Further Due to Housing Decline

During November, the value of construction put in place fell another 0.6% though the decline during October was lessened to 0.4%. So far this year total construction spending is down 1.4%. The 20.7% decline in the value of residential building has been mitigated by an 11.6% gain in the nonresidential category and an 8.8% rise in public construction. Consensus expectations had been for a 1.2% November decline.

Residential building activity led the latest monthly decline. The 4.2% drop was the third in a row and activity remained off by one quarter from last year. Single-family construction activity fell 6.6% and it's off by nearly one half year-to-year. Building activity on multi-family units also was weak and it posted a 1.8% decline (-2.6 y/y), off 20% from the early-2007 peak. Spending on improvements fell a sharp 2.1% m/m (+8.1% y/y).

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 has remained firm relative to the residential sector. During November it posted a 0.7% gain and that pulled activity up 10.3% y/y, though that momentum is down by half from last year. Spending on office construction rose about as it did during October, by 0.9%, but the y/y gain of 5.0% is much reduced from the near 20% growth of the prior two years. Building in the multi-retail sector was unchanged m/m and it was down 15.0% y/y after a 17.0% gain last year and a 28.3% pop during 2006. Spending on health care facilities reversed much of an October decline with a 0.8% increase and y/y growth near 8.6% has been steady.

Public construction rose another 1.4% and the 1.7% October gain was revised sharply upward from the preliminary report. Spending on public safety surged by 10.2% and it's up by one-third year-to-year. The value of spending on transportation facilities fell 1.9% but the y/y increase of 5.4% remained firm. Spending on highways & streets rose 1.3% (8.3% y/y). The value of construction on highways & streets is roughly one-third of the value of total public construction spending.

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.