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posted on 03 January 2020

November 2019 Construction Spending Year-over-Year Growth Continues To Trend Upward

Written by Steven Hansen

The headlines say construction spending improved month-over-month. Our analysis shows the rolling averages improved.

Analyst Opinion of Construction Spending

The rolling averages improved. Also note that inflation is grabbing hold, and the inflation-adjusted numbers are slightly in contraction.

Consider this a better report relative to last month.

Econintersect analysis:

  • Growth accelerated 1.4 % month-over-month and up 3.9 % year-over-year.
  • Inflation-adjusted construction spending down 0.4 % year-over-year.
  • 3 month rolling average is 2.4 % above the rolling average one year ago which accelerated 1.6 % month-over-month. As the data is noisy (and has so much backward revision) - the moving averages likely are the best way to view construction spending.
  • Backward revision for the last 3 months was generally upward.

US Census Analysis:

  • Up 0.6 % month-over-month and up 4.1 % (was published +1.1 % last month) year-over-year.
  • Market expected from Econoday 0.1 % to 1.0 % month-over-month (consensus +0.3 %).

Construction spending (unadjusted data) was declining year-over-year for 48 straight months until November 2011. That was four years of headwinds for GDP.

This month's headline statement from US Census:

Construction spending during November 2019 was estimated at a seasonally adjusted annual rate of $1,324.1 billion, 0.6 percent (±1.0 percent)* above the revised October estimate of $1,316.8 billion. The November figure is 4.1 percent (±1.5 percent) above the November 2018 estimate of $1,271.4 billion. During the first eleven months of this year, construction spending amounted to $1,201.6 billion, 0.8 percent (±1.2 percent)* below the $1,211.8 billion for the same period in 2018.

PRIVATE CONSTRUCTION - Spending on private construction was at a seasonally adjusted annual rate of $985.5 billion, 0.4 percent (±0.7 percent)* above the revised October estimate of $981.1 billion. Residential construction was at a seasonally adjusted annual rate of $536.1 billion in November, 1.9 percent (±1.3 percent) above the revised October estimate of $526.3 billion. Nonresidential construction was at a seasonally adjusted annual rate of $449.4 billion in November, 1.2 percent (±0.7 percent) below the revised October estimate of $454.7 billion.

PUBLIC CONSTRUCTION - In November, the estimated seasonally adjusted annual rate of public construction spending was $338.6 billion, 0.9 percent (±1.5 percent)* above the revised October estimate of $335.7 billion. Educational construction was at a seasonally adjusted annual rate of $83.9 billion, virtually unchanged from (±1.5 percent)* the revised October estimate of $84.0 billion. Highway construction was at a seasonally adjusted annual rate of $96.4 billion, 2.2 percent (±3.9 percent)* above the revised October estimate of $94.3 billion.

Unadjusted Private Construction Spending Year-Over-Year (blue line) and Unadjusted Public Construction Spending Year-Over-Year (red line)

Private construction had been fueling construction growth - but currently, both private construction is declining.

Caveats on the Use of Construction Spending Data

Although the data in this series is revised for several months after the issue, the revision is generally minor. This series is produced by sampling - and the methodology varies by sector being sampled.

The headline data is seasonally adjusted. Econintersect uses the raw unadjusted data. Econintersect determines the month-over-month change by subtracting the current month's year-over-year change from the previous month's year-over-year change. This is the best of the bad options available to determine month-over-month trends - as the preferred methodology would be to use multi-year data (but the New Normal effects and the Great Recession distort historical data).

The data set for construction spending is not inflation-adjusted. Econintersect adjusts using the BLS Producers Price Index - subindex New Construction (PCUBNEW-BNEW). However in the inflation-adjusted graph in this post, FRED does not have this series - and Econintersect has used Producer Price Index: Finished Goods Less Energy (PPIFLE), Monthly, Seasonally Adjusted which has similar characteristics.

Construction (which historically is a major economic driver) is a literal shadow of its former self. Its contribution to GDP is down $400 billion from its peak level in 2006. The main driver of construction spending is the private sector. Here is the historical breakdown. The graph below uses US Census seasonally adjusted data.

Obvious from the above graph that private spending on construction is falling off, while public spending is slightly trending up.



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