Wednesday, 22 of November of 2017

Economics. Explained.  

Construction Spending

November 1, 2017

Construction spending (the green bars above) rose 0.3% in September after having climbed 0.1% in August.  Over the past year it has risen 2.0%.  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 five months, one should not read too much into it just yet.

Private construction fell 0.4% in September after having fallen 0.1% in August and 0.9% in July.  Over the past year private construction spending has risen 3.1%.   The 3.1% increase in the past year reflects a 3.8% decline in private non-residential construction and a sizable 9.6% increase in the private residential category.

Within the private construction spending category, residential spending was unchanged in September after having risen 0.3% in August.   Over the course of the past year private residential construction has risen by 9.6%.  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 11.9% in the past year, multifamily construction has climbed by 0.9%.

The Census Bureau tells us that on average 0.7 million new households are being formed every year.  That is a much slower Pace than what it had been estimating six months ago.  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 1.2 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 fell 0.8% in September after having dropped 0.7% in August and 1.0% in July..   During the past 12 months nonresidential construction has declined 3.8%.  To get some lift in the investment spending component of GDP we need this component to turn upwards.

Public sector construction jumped 2.6% in September after having risen 0.7% in August.  This category can be quite volatile on a month-to-month basis.  Over the past year such spending has fallen 1.6%.  It is likely to rebound in the months ahead.

Stephen Slifer


Charleston, SC

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