December 2019 Construction Spending Continues to Improve

Written by Steven Hansen

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

Econintersect analysis:

• Growth accelerated 0.3 % month-over-month and up 5.2 % year-over-year.
• Inflation-adjusted construction spending up 0.7 % year-over-year.
• 3 month rolling average is 4.2 % above the rolling average one year ago which accelerated 1.4 % 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:

• Down 0.2 % month-over-month and up 5.0 % (was published +4.1 % last month) year-over-year.
• Market expected from Econoday 0.2 % to 1.3 % month-over-month (consensus +0.5 %).

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 December 2019 was estimated at a seasonally adjusted annual rate of $1,327.7 billion, 0.2 percent (± 0.8 percent)* below the revised November estimate of $1,329.9 billion. The December figure is 5.0 percent (±1.3 percent) above the December 2018 estimate of $1,264.8 billion. The value of construction in 2019 was $1,303.5 billion, 0.3 percent (±1.0 percent)* below the $1,307.2 billion spent in 2018.

PRIVATE CONSTRUCTION – Spending on private construction was at a seasonally adjusted annual rate of $991.2 billion, 0.1 percent (±0.5 percent)* below the revised November estimate of $992.2 billion. Residential construction was at a seasonally adjusted annual rate of $540.7 billion in December, 1.4 percent (±1.3 percent) above the revised November estimate of $533.3 billion. Nonresidential construction was at a seasonally adjusted annual rate of $450.5 billion in December, 1.8 percent (±0.5 percent) below the revised November estimate of $458.9 billion. The value of private construction in 2019 was $974.7 billion, 2.5 percent (±1.0 percent) below the $1,000.2 billion spent in 2018. Residential construction in 2019 was $514.3 billion, 4.7 percent (±2.1 percent) below the 2018 figure of $539.6 billion and nonresidential construction was $460.4 billion, virtually unchanged from (±1.0 percent)* the $460.5 billion in 2018.

PUBLIC CONSTRUCTION -In December, the estimated seasonally adjusted annual rate of public construction spending was $336.4 billion, 0.4 percent (±1.3 percent)* below the revised November estimate of $337.7 billion. Educational construction was at a seasonally adjusted annual rate of $80.4 billion, 2.1 percent (±2.1 percent)* below the revised November estimate of $82.1 billion. Highway construction was at a seasonally adjusted annual rate of $99.9 billion, 3.1 percent (±3.1 percent)* above the revised November estimate of $96.9 billion. The value of public construction in 2019 was $328.8 billion, 7.1 percent (±1.8 percent) above the $307.1 billion spent in 2018. Educational construction in 2019 was $79.0 billion, 3.4 percent (±3.6 percent)* above the 2018 figure of $76.4 billion and highway construction was $98.8 billion, 8.8 percent (±4.6 percent) above the $90.8 billion in 2018.

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, public construction is fueling the growth.

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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