Written by Steven Hansen
US Census reported that construction spending grew in March 2012. Unfortunately, government construction spending dragged on the robustly expanding private sector. Government construction spending is outright contracting.
- Up 0.1% month-over-month and Up 6.0% year-over-year
- Market expected Up 0.5% to 0.8% month-over-month
- Down 2.1% month-over-month and Up 5.4% year-over-year
- Inflation adjusted construction spending Down 1.9% month-over-month – and up 1.1% year-over-year.
Construction spending (unadjusted data) was declining year-over-year for 47 straight months until October 2011. That was almost four years of headwinds for GDP. February 2012 is the sixth month of year-over-year construction spending expansion.
The U.S. Census Bureau of the Department of Commerce announced today that construction spending during March 2012 was estimated at a seasonally adjusted annual rate of $808.1 billion, 0.1 percent (±1.4%)* above the revised February estimate of $807.3 billion. The March figure is 6.0 percent (±1.9%) above the March 2011 estimate of $762.6 billion. During the first 3 months of this year, construction spending amounted to $171.2 billion, 6.7 percent (±1.6%) above the $160.4 billion for the same period in 2011.
PRIVATE CONSTRUCTION – Spending on private construction was at a seasonally adjusted annual rate of $531.9 billion, 0.7 percent (±1.3%)* above the revised February estimate of $528.1 billion. Residential construction was at a seasonally adjusted annual rate of $244.1 billion in March, 0.7 percent (±1.3%)* above the revised February estimate of $242.5 billion. Nonresidential construction was at a seasonally adjusted annual rate of $287.8 billion in March, 0.7 percent (±1.3%)* above the revised February estimate of $285.7 billion.
PUBLIC CONSTRUCTION – In March, the estimated seasonally adjusted annual rate of public construction spending was $276.2 billion, 1.1 percent (±2.2%)* below the revised February estimate of $279.1 billion. Educational construction was at a seasonally adjusted annual rate of $69.1 billion, 1.2 percent (±3.5%)* below the revised February estimate of $70.0 billion. Highway construction was at a seasonally adjusted annual rate of $77.0 billion, 0.8 percent (±7.7%)* below the revised February estimate of $77.6 billion.
In March 2012, public sector construction is down 5.5% year-over-year (down 2.6% year-to-date). Private construction is up 10.7% year-over-year (up 11.7% year-to-date) – all numbers are unadjusted. Construction spending would have to increase by more than 45% to equal the average for 2006, 2007 and 2008. The sector is in a deep depression.
Inflation adjusted construction spending (which compares apples to apples between time periods) is now up 1.1% year-over-year.
Caveats on the Use of Construction Spending Data
Although the data in this series is revised for several months after issuing, 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).
The graph below uses both US Census unadjusted (TTLCON) and seasonally adjusted (TTLCONS) data so one can evidence the distortion of the seasonal adjusting techniques are having on the headline analysis (updated through February 2012).
Construction (which historically is an 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 (updated through February 2012).