Construction spending jumped 1.5 percent, far ahead the Econoday Economists’ Consensus expectation of 0.5 percent. The surge was in government spending though, not housing.
Construction spending rose a strong 1.5 percent in January in strength, however, that does not include housing. A one-month surge in highway & street spending skewed the headline higher as did gains for manufacturing and on Federal construction projects.
The residential component was unchanged in the month as a 0.2 percent slip in single-family homes offset another jump in the much smaller multi-family subcomponent which rose 2.6 percent in the month. Demand on the multi-family side, reflecting strength in rental prices, has been very strong with year-on-year spending up 30.4 percent vs 6.6 percent for single-family homes. Together, residential spending is up a year-on-year 7.7 percent.
Other year-on-year rates include an impressive 33.9 percent gain for highways & streets which is a big category. Federal, a far smaller category, is up 9.9 percent. Turning to the private nonresidential components, offices lead at a 24.8 percent year-on-year gain.
The median-to-high single digit year-on-year gain for residential spending is roughly in line with gains in both sales and prices. Historically, these are moderate rates of growth for the housing sector but, right now, are among the very highest for the economy as a whole. On the non-residential side, today’s gains are a very good start for first-quarter business investment.
Construction spending had been a strength for the economy until late last year when the annualized rate, despite mild weather in November and December, flattened out at just over $1.1 trillion. Still, growth across most readings, both residential and non-residential, has been trending in the high single digits with multi-family homes on the residential side a standout with year-on-year growth at 12.0 percent in the December report. Forecasters see renewed strength in January with the Econoday consenus at plus 0.5 percent. Housing and construction have been bumpy but on net have been contributing to overall economic growth.
This report is another sign housing is slipping.
Mike “Mish” Shedlock