March construction spending was revised from a prior reported 0.3% to 1.5%, but the good news stops there. April construction spending declined a whopping 1.8%, the most since January 2011.
Bloomberg Econoday spins this a bit more positive than I do, so let’s take a look.
A major downturn for construction spending in April is offset to a large degree by a major upward revision to the prior month. Construction spending fell 1.8 percent in April for the worst reading since January 2011. But March’s gain, initially at only plus 0.3 percent, is now plus 1.5 percent. And February is also revised higher, up 4 tenths to plus 1.4 percent. Still, the year-on-year rate does point to slowing, at plus 4.5 percent which is down from a long run in the high single digits and the lowest since June 2013.
The best news in the report is on the residential side which however did slip 1.5 percent in the month but follows upwardly revised gains of 3.2 percent and 2.6 percent in the prior two months. Year-on-year, residential spending is up a very strong 8.0 percent. Multi-family units, up an on-year 21.4 percent despite a 3.1 percent monthly decline, lead the way but single-family units are more than respectable, at a year-on-year gain of 12.9 percent though unchanged on the month.
Private nonresidential construction fell 1.5 percent on the month for the worst reading since January 2013, with the year-on-year gain at only 3.4 percent. Manufacturing is the central weakness, down an on-year 10 percent. The power component has also been lagging in this group, up only 1.7 percent year-on-year. But office spending is much higher, up nearly 25 percent year-on-year, with spending on commercial building up an on-year 5.0 percent.
Public spending is roughly in line with private nonresidential spending, up 4.5 percent year-on-year for education and up 4.0 percent for highways & streets. Federal spending is subdued, up an on-year 0.9 percent, as is state & local spending up 1.2 percent.
Construction had been at the very top of this year’s economy though this report takes the sector down a notch. But when looking exclusively at housing and excluding the downbeat trend for business investment, the news is still very positive.
Construction spending has been positive this year and well ahead of home sales which have only recently been showing strength. Residential construction, up 1.8 percent, was especially strong in March while nonresidential construction rose 0.7 percent. Year-on-year, total construction spending was up 8.0 percent, split between a 7.8 percent gain on the residential side and a 9.3 percent gain on the non-residential side. These were down from 10 percent rates in prior reports but are still very hard to match anywhere else in the economy. Forecasters see the strength continuing with the consensus for April at a monthly plus 0.6 percent.
Year-Over Year Numbers
The above table from Census.Gov.
The volatility in this series is shocking, but many of the year-over-year numbers look very good.
Homebuilding did improve hugely, but we already knew that from the massive jump in new home sales.
On the negative side, the downbeat trend in business investment reflects on future hiring that will not happen.
Commercial spending is up 5.0% year-over-year. However, this month’s reading of -3.6% is foreboding.
Walmart, Target, and the fast food places will not hire for stores they are not building.
With minimum wage hikes scaling up to $15, and with retail profits collapsing, just why do retailers or fast food restaurants want to build new stores?
To understand how this all ties together, please see Retail Department Store Carnage: Amazon to Blame? Mish 12-Point Summation
It appears the Fed will be hiking rates smack into hiring slowdown (assuming of course the Fed really does hike).
Mike “Mish” Shedlock