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Monday, December 02, 2013

Construction Spending increased in October

by Calculated Risk on 12/02/2013 11:31:00 AM

Note: The release today was for both September and October.  Construction spending decreased in September and increased in October (October was up from August).

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

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during October 2013 was estimated at a seasonally adjusted annual rate of $908.4 billion, 0.8 percent above the September estimate of $901.2 billion. The October figure is 5.3 percent above the October 2012 estimate of $863.1 billion.
Spending on private construction was at a seasonally adjusted annual rate of $625.7 billion, 0.5 percent below the September estimate of $629.0 billion. ...

In October, the estimated seasonally adjusted annual rate of public construction spending was $282.7 billion, 3.9 percent above the September estimate of $272.2 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.

There has been a "pause" in residential construction spending, but the level is still very low and I expect residential spending to continue to increase.  Private residential spending is 52% below the peak in early 2006, and up 43% from the post-bubble low.

Non-residential spending is 28% below the peak in January 2008, and up about 33% from the recent low.

Public construction spending is now 13% below the peak in March 2009 and up about 7% 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 17%. Non-residential spending is down 3% 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 start to increase.

3) Public construction spending increased in October and is now 7% above 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, 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.