Tuesday, 26 of September of 2017

Economics. Explained.  

Construction Spending

September 1, 2017

Construction spending (the green bars above) fell 0.6% in July after having fallen 1.4% in June.  Over the past year it has risen 1.8%.  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.  So while this series has been soft in the past three months, one should not read too much into it just yet.

Private construction declined 0.4% in July after having fallen 0.5% in June.  Over the past year private construction spending has risen 4.1%.   The 4.1% increase in the past year reflects a 3.6% decline in private non-residential construction and a sizable 11.6% increase in the private residential category.

Within the private construction spending category, residential spending rose 0.8% in July after having risen 0.4% in June.   Over the course of the past year private residential construction has risen by 11.6%.  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 risen 10.4% in the past year, multifamily construction has climbed by 2.6%.

The Census Bureau tells us that on average 1.3 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.  Currently, builders are only starting about 1.2 million units per year.  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 declined 1.9% in July after having fallen 1.6% in June.    On a year-over-year basis it fallen 3.6%.  To get some lift in the investment spending component of GDP we need this component to turn upwards.

Public sector construction fell 1.4% in July after having plunged 4.4% in June.  This category can be quite volatile on a month-to-month basis.  Over the past year such spending has fallen 5.6%.  It will rebound in the months ahead.

Stephen Slifer


Charleston, SC

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