Written by Steven Hansen
Construction spending growth now is perceptively decelerating, is above expectations – but rate of growth continues decelerating. This delayed data is for September and October 2013 due to the government shutdown.
This analysis will be for the month of October – and obviously the September data was used in this analysis. Headline construction spending was slightly above expectations in October 2013. Public sector construction grew more than the private sector in year-over-year comparisons – this has not happened in a very long time.
The backward revision this month was generally moderate. The 3 month rolling average of year-over-year growth is decelerating – and the three month rolling average has been decelerating for the last five months.
- Growth decelerated 0.8% month-over-month and Up 2.5% year-over-year
- Inflation adjusted construction spending up 1.8% year-over-year.
- Up 0.8% month-over-month and Up 5.3% year-over-year
- Market expected up 0.3% month-over-month (versus the +0.8% reported)
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 twenty-fifth month of year-over-year spending expansion, and the rate of growth has been around 5% for most of 2013 . This month is well below this 2013 trend.
Indexed and Seasonally Adjusted Total Construction Spending (blue line) and Inflation Adjusted (red line)
This month’s headline statement from US Census:
The U.S. Census Bureau of the Department of Commerce announced today that construction spending during October 2013 was estimated at a seasonally adjusted annual rate of $908.4 billion, 0.8 percent (±1.8%)* above the September estimate of $901.2 billion. The October figure is 5.3 percent (±2.1%) above the October 2012 estimate of $863.1 billion. During the first 10 months of this year, construction spending amounted to $747.0 billion, 5.0 percent (±1.3%) above the $711.7 billion for the same period in 2012.
PRIVATE CONSTRUCTION – Spending on private construction was at a seasonally adjusted annual rate of $625.7 billion, 0.5 percent (±1.0%)* below the September estimate of $629.0 billion. Residential construction was at a seasonally adjusted annual rate of $326.9 billion in October, 0.6 percent (±1.3%)* below the September estimate of $328.7 billion. Nonresidential construction was at a seasonally adjusted annual rate of $298.9 billion in October, 0.5 percent (±1.0%)* below the September estimate of $300.2 billion.
PUBLIC CONSTRUCTION – In October, the estimated seasonally adjusted annual rate of public construction spending was $282.7 billion, 3.9 percent (±3.0%) above the September estimate of $272.2 billion. Educational construction was at a seasonally adjusted annual rate of $64.0 billion, 8.5 percent (±4.1%) above the September estimate of $59.0 billion. Highway construction was at a seasonally adjusted annual rate of $83.3 billion, 0.6 percent (±6.9%)* above the September estimate of $82.8 billion.
Unadjusted Total Construction Spending Year-Over-Year (blue line) and Month-over-Month (red line) Change
Unadjusted Private Construction Spending Year-Over-Year (blue line) and Month-over-Month (red line) Change
Unadjusted Public Construction Spending Year-Over-Year (blue line) and Month-over-Month (red line) Change
It is obvious from the above graphics that all recent growth in construction spending has been in the private sector – but public sector is on a “less bad” trend line.
Public construction is up 2.8% year-over-year (down 2.8% year-to-date) – all numbers are unadjusted. Private construction is up 2.3% year-over-year (up 8.8% 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.
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). 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 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.
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.
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