May 2012 Construction Spending Growth is Stable

Written by Steven Hansen

US Census reported that construction spending grew month-over-month in May 2012.  I would be real slow in accepting this as fact:

  • the whole data series was revised back to January 2010 so one’s perspective of up or down lacks perspective.  Please refer to the year-over-year graphs below to grasp the size of the backward revision;
  • inflation adjusted year-over-year growth has been flat (growing at nearly the same rate) for the last five months.

Unfortunately, government construction spending continues to drag on the relatively robustly expanding private sector.

US Census Analysis:

  • Up 0.9% month-over-month and Up 7.0% year-over-year
  • Market expected Up 0.2% month-over-month

Econintersect analysis:

  • Down 1.6% month-over-month and Up 7.4% year-over-year
  • Inflation adjusted construction spending Down 0.3% month-over-month – and up 6.1% year-over-year.

Construction spending (unadjusted data) was declining year-over-year for 48 straight months until November 2011. That was almost four years of headwinds for GDP. Construction spending is now in the seventh month of year-over-year construction spending expansion.

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during May 2012 was estimated at a seasonally adjusted annual rate of $830.0 billion, 0.9 percent (±1.5%)* above the revised April estimate of $822.5 billion. The May figure is 7.0 percent (±2.0%) above the May 2011 estimate of $775.8 billion.  During the first 5 months of this year, construction spending amounted to $310.5 billion, 9.4 percent (±1.6%) above the $283.8 billion for the same period in 2011.

PRIVATE CONSTRUCTION – Spending on private construction was at a seasonally adjusted annual rate of $560.4 billion, 1.6 percent (±1.6%)* above the revised April estimate of $551.8 billion. Residential construction was at a seasonally adjusted annual rate of $261.3 billion in May, 3.0 percent (±1.3%) above the revised April estimate of $253.8 billion. Nonresidential construction was at a seasonally adjusted annual rate of $299.1 billion in May, 0.4 percent (±1.6%)* above the revised April estimate of $298.0 billion.

PUBLIC CONSTRUCTION – In May, the estimated seasonally adjusted annual rate of public construction spending was $269.6 billion, 0.4 percent (±2.1%)* below the revised April estimate of $270.7 billion. Educational construction was at a seasonally adjusted annual rate of $65.0 billion, 3.0 percent (±3.8%)* below the revised April estimate of $67.0 billion. Highway construction was at a seasonally adjusted annual rate of $78.0 billion, 0.5 percent (±6.3%)* below the revised April estimate of $78.4 billion.

Last month’s graphic:

This month’s graphic after backward revision to January 2010:

Public sector construction is down this month 3.0% year-over-year (down 3.5% year-to-date). Private construction is up 13.1% year-over-year (up 16.6% 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.

Last month’s graphic:

This month’s graphic after backward revision to January 2010:

Inflation adjusted construction spending (which compares apples to apples between time periods) is now up 6.1% 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).

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 April 2012).

Obvious from the above graph that public spending on construction is falling off, while private spending is slightly trending up. The overall effect is that construction spending is near the same place it was in early 2010.

Related Articles: All Construction Spending Articles

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