Tuesday, October 22, 2013

Construction Spending increased in August

by Bill McBride on 10/22/2013 10:00:00 AM

The Census Bureau reported that overall construction spending increased in August:

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during August 2013 was estimated at a seasonally adjusted annual rate of $915.1 billion, 0.6 percent above the revised July estimate of $909.4 billion. The August figure is 7.1 percent above the August 2012 estimate of $854.0 billion.
...
Spending on private construction was at a seasonally adjusted annual rate of $640.5 billion, 0.7 percent above the revised July estimate of $636.1 billion. ...

In August, the estimated seasonally adjusted annual rate of public construction spending was $274.5 billion, 0.4 percent above the revised July estimate of $273.4 billion.
Private Construction Spending Click on graph for larger image.

This graph shows private residential and nonresidential construction spending, and public spending, since 1993. Note: nominal dollars, not inflation adjusted.

Private residential spending is 50% below the peak in early 2006, and up 49% from the post-bubble low.

Non-residential spending is 27% below the peak in January 2008, and up about 34% from the recent low.

Public construction spending is now 16% below the peak in March 2009 and up about 4% from the recent low.

Private Construction SpendingThe second graph shows the year-over-year change in construction spending.

On a year-over-year basis, private residential construction spending is now up 26%. Non-residential spending is up 4% year-over-year. Public spending is down 2% year-over-year.

To repeat a few key themes:
1) Private residential construction is usually the largest category for construction spending, and is now the largest category once again.  Usually private residential construction leads the economy, so this is a good sign going forward.

2) Private non-residential construction spending usually lags the economy.  There was some increase this time for a couple of years - mostly related to energy and power - but the key sectors of office, retail and hotels are still at very low levels.  I expect private non-residential to start to increase.

3) Public construction spending increased in August and is now 4% above the low in April.  It is possible that the drag from public construction spending is over.  Public spending has declined to 2006 levels (not adjusted for inflation) and was a drag on the economy for 4 years. In real terms, public construction spending has declined to 2001 levels.