Monday, February 03, 2014

Construction Spending increased slightly in December

by Calculated Risk on 2/03/2014 11:45:00 AM

The Census Bureau reported that overall construction spending increased slightly in December:

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during December 2013 was estimated at a seasonally adjusted annual rate of $930.5 billion, 0.1 percent above the revised November estimate of $929.9 billion. The December figure is 5.3 percent above the December 2012 estimate of $883.6 billion.
...
Spending on private construction was at a seasonally adjusted annual rate of $663.9 billion, 1.0 percent above the revised November estimate of $657.1 billion. Residential construction was at a seasonally adjusted annual rate of $352.6 billion in December, 2.6 percent above the revised November estimate of $343.8 billion. Nonresidential construction was at a seasonally adjusted annual rate of $311.3 billion in December, 0.7 percent below the revised November estimate of $313.4 billion. ...

In December, the estimated seasonally adjusted annual rate of public construction spending was $266.6 billion, 2.3 percent below the revised November estimate of $272.8 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 48% below the peak in early 2006, and up 54% from the post-bubble low.

Non-residential spending is 25% below the peak in January 2008, and up about 38% from the recent low.

Public construction spending is now 18% below the peak in March 2009 and up just about 1% 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 25%. Non-residential spending is down 2% year-over-year. Public spending is down slightly 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 in 2014

3) Public construction spending was down in December and is now only 1% above the low in April.  However 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.