Monday, March 03, 2014

Construction Spending increased in January

by Bill McBride on 3/03/2014 10:45:00 AM

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

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during January 2014 was estimated at a seasonally adjusted annual rate of $943.1 billion, 0.1 percent above the revised December estimate of $941.9 billion. The January figure is 9.3 percent above the January 2013 estimate of $863.1 billion.
Private spending increased in January, but public spending was down:
Spending on private construction was at a seasonally adjusted annual rate of $670.8 billion, 0.5 percent above the revised December estimate of $667.5 billion. Residential construction was at a seasonally adjusted annual rate of $359.9 billion in January, 1.1 percent above the revised December estimate of $356.0 billion. Nonresidential construction was at a seasonally adjusted annual rate of $310.9 billion in January, 0.2 percent below the revised December estimate of $311.5 billion. ...

In January, the estimated seasonally adjusted annual rate of public construction spending was $272.3 billion, 0.8 percent below the revised December estimate of $274.4 billion.
emphasis added
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 47% below the peak in early 2006, and up 57% from the post-bubble low.

Non-residential spending is 25% below the peak in January 2008, and up about 39% from the recent low.

Public construction spending is now 16% below the peak in March 2009 and up just about 3% 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 15%. Non-residential spending is up 9% year-over-year. Public spending is up 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.  Based on the architecture billings index, I expect private non-residential to increase this year.

3) Public construction spending was down in January, but is up 3% from the low in April.  It appears 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.

Looking forward, all categories of construction spending should continue to increase. Residential spending is still very low, non-residential should start to pickup, and public spending appears to have bottomed.

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