Written by rjs, MarketWatch 666
November’s construction spending; October Case-Shiller HPI, December auto sales
The only major agency report released this week was the November report on Construction Spending (pdf) from the Census Bureau…in addition, in the last of the regional Fed surveys for December, the Dallas Fed Texas Manufacturing Outlook Survey, reported their general business activity composite index fell to -3.2 from November’s -1.3, thus suggesting a modest contraction of the Texas manufacturing economy.
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Privately issued reports released this week included the December report on light vehicle sales from Wards Automotive, which estimated that vehicles sold at a 16.70 million annual rate in December, down from the 17.09 million annual pace of vehicle sales in November and down from the 17.51 million vehicle rate reported for December of 2018, and the widely followed manufacturing purchasing manager’s survey from the Institute for Supply Management (ISM): the December Manufacturing Report On Business reported that the manufacturing PMI (Purchasing Managers Index) fell to 47.2% in December, down from 48.1% in November and the lowest reading since June 2009, which suggests a modest contraction among manufacturing firms nationally…
This week also saw the release of the Case-Shiller Home Price Index for October from S&P Case-Shiller, which doesn’t even include any prices of homes, but just a index generated by averaging relative sales prices of homes that sold during August, September and October against the sales prices of the same homes when they sold during prior 3 month periods going back to January 2000…comparing sales prices on that basis, the Case-Shiller report indicated that their national home price index for those 3 months averaged 3.3% higher than it did for the same homes that sold during the same 3 month period a year earlier, up from the 3.2% year over year index increase indicated by the September report.
See also:
- December 2019 Texas Manufacturing Returns To Expansion
- December 2019 ISM and Markit Manufacturing Surveys Marginally Decline
- December 2019 Chicago Purchasing Managers Barometer Improves But Remains In Contraction
- S and P CoreLogic Case-Shiller 20 City Home Price Index October 2019 Year-over-Year Growth Now 2.2%
- November 2019 Pending Home Sales Improved
- 01 January 2020 Fed’s Balance Sheet Up $115 Billion Over Last 12 Months
- 11 December 2019 FOMC Meeting Minutes: Will Keeping The Federal Funds Rate Low Encourage Risk Taking?
- Job Cuts Rise 10% in 2019
- December 2019 Conference Board Consumer Confidence: Consumer Spending Unlikely to Gain Momentum in Early 2020
- Weekly Economic Release Summary: What Is Consumer Confidence Saying About The Economy In 2020
Construction Spending Rose 0.6% in November After Prior Months Were Revised Much Higher
The Census Bureau’s report on construction spending for November (pdf) estimated that the month’s seasonally adjusted construction spending would work out to $1,324.1 billion annually if extrapolated over an entire year, which was 0.6 percent (±1.0%)* above the revised October annualized estimate of $1,316.8 billion and also 4.1 percent (±1.5 percent) above the estimated annualized level of construction spending in November of last year…at the same time, the annualized October construction spending estimate was revised nearly 2.0% higher, from $1,291.1 billion to $1,316.8 billion, while the annual rate of construction spending for September was revised more than 1.0% higher, from $1,301.8 billion to $1,315.2 billion…the $13.4 billion upward revision to September construction spending would imply that the 3rd estimate of 3rd quarter GDP growth was understated by roughly than 0.10 percentage points, a change which will not be applied to published GDP figures until the annual revision is released in the middle of next summer…
A further breakdown of the different subsets of construction spending is provided in a Census summary, which precedes the detailed spreadsheets:
- 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.
As you can infer from that summary, construction spending would be included in 3 subcomponents of GDP; investment in private non-residential structures, investment in residential structures, and in government investment outlays, for both state and local and Federal governments…however, getting an accurate read on the impact of November spending reported in this release on 4th quarter GDP is difficult because all figures given here are in nominal dollars and as you know, data used to compute the change in GDP must be adjusted for changes in price…that’s difficult because there are multiple prices indexes for different types of construction listed in the National Income and Product Accounts Handbook, Chapter 6 (pdf), so in lieu of trying to adjust for the prices changes of all of those types of construction separately, we’ve opted to use the producer price index for final demand construction as an inexact shortcut to make an approximate price adjustment and thereby get a rough estimate of the real change in construction…
That price index showed that aggregate construction costs were unchanged in November after being up 0.4% in October, up 0.1% in September and unchanged in August…on that basis, we can estimate that construction costs for November were up 0.4% from September, up 0.5% from August, and up 0.5% from July, while they were obviously unchanged from October…we then use those percentage changes to inflate the lower cost spending figures for each of those 3rd quarter months against November, which is arithmetically the same as adjusting higher priced October and November construction spending downward, for purposes of comparison…annualized construction spending in millions of dollars for the third quarter months is given as $1,315,229 for September, $1,305,986 for August, and $1,291,250 for July, while it was at annual rates of $1,316,764 in October and @1,324,122 in November….thus to compare the difference between the inflation adjusted construction spending of the two recent 4th quarter months and those of the third quarter, our calculation would be ((1,324,122 + 1,316,764)/2) / ((1,315,229 *1.004 + 1,305,986 * 1.005 + 1,291,250 * 1.005) / 3) = 1.007789, meaning average real construction over the months of October and November was up 0.7789% vis a vis the 3rd quarter…in GDP terms, that means real construction for the 4th quarter has increased at an annual rate of 3.152% from that of the 3rd quarter so far, or at a pace that would add about 0.23 percentage points to 4th quarter GDP, should real December construction continue at the same pace as that of October and November.
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