Monday, 25 of March of 2019

Economics. Explained.  

Construction Spending

March 13, 2019

Construction spending (the green bars above) rose 1.3% in January after having declined 1.3% in November and 0.8% in December.  Over the past year it has risen 0.3%.  Not only is this a very volatile series with large swings from month to month, even the previously released data can revise substantially.  Furthermore, the series can be distorted by big swings in public construction spending.  Having said all of that, construction spending has come to a halt over the course of the past year driven largely by a drop in residential construction, single-family homes in particular.

Private construction rose 0.2% in January after having declined 1.3% in November and 0.7% in December.  Over the past year private construction spending has fallen 2.0% which reflects a 2.4% increase in private non-residential construction and a 5.6% decline in the private residential category.

Within the private construction spending category, residential spending fell 0.3% in January after having plunged 1.9% in December.   Over the course of the past year private residential construction has fallen 5.6%.  The shortages of both homes available for sale and apartments will push this series higher in the months ahead, however the scarce availability of labor will limit its rise.  Construction of private single family homes has declined 7.2% in the past year, multifamily construction has risen 12.8%.

The Census Bureau tells us that on average 1.2 million new households are being formed every year.  Those families need a place to live.  It could be a home.  It could be an apartment.  Replacement demand should add about 0.5 million unit to that for a total demand of 1.7 million or so units per year.  Currently, builders are starting about 1.2 million units per year.  But keep in mind that housing starts have fallen way short of demand for the past nine years. Thus, the demand for housing will remain strong for the foreseeable future which will keep construction workers fully employed for some time to come.

Private nonresidential construction rose 0.8% in January after having climbed by 0.6% in December.   During the past 12 months nonresidential construction has risen 2.4%.  To get more lift in the investment spending component of GDP we would like this component to turn more sharply upwards.

Public sector construction jumped 4.9% in January after having declined 1.0% in December.  This category can be quite volatile on a month-to-month basis.  Over the past year such spending has risen 8.0%.  It will probably rise about 7.0% this year given the increase in defense spending approved in January.

Stephen Slifer


Charleston, SC

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