Construction spending in August took a dump of 0.7% against an Econoday Consensus estimate of +0.3%.
Moreover the Census bureau revised July construction spending from +0.0% to -0.3%.
Effectively, economists were off by a full percentage point. Even without the adjustment, not a single economist got the number correct.
Highlights
Multi-family units are just about the only strength in what is a weak construction spending report for August, down 0.7 percent on the month with July revised 3 tenths lower and into the negative column at minus 0.3 percent. Construction spending on new single-family homes fell 0.9 percent for the third monthly contraction in a row. This belies solid strength in new home sales and points to continued lack of supply in the new home market. But multi-family units are a different story, up 2.4 percent and, with July and June both revised higher, the fourth gain in a row. Strength here reflects expectations of strength for the rental market.
Nonresidential construction is weak across nearly all readings with commercial structures down 2.0 percent in the month, power down 1.5 percent, and manufacturing down 1.4 percent. These readings all reflect lack of business investment which is the economy’s stubbornly weak suit. Public spending is also weak, down 0.4 percent for educational structures and down 2.9 percent for highways and roads. Positives are hard to find but do include a 2.3 percent gain in office structures and a 4.0 percent rise in federal structures, the latter offset by a 2.5 decline at the state & local level.
Year-on-year rates confirm the weak trends with single-family homes down 1.5 percent and total construction spending down 0.3 percent. The big plus here, once again, is multi-family units where year-on-year spending is up a robust 13.9 percent. But multi-family units make up only 5 percent of total construction spending which otherwise is not having a great year.
New Home Sales
This Econoday writer just cannot come to grips with economic reality: Generally, builders start construction when someone makes a purchase. Builders do not build so much on spec as they did in 2005.
A decline in construction spending, if accurate, is a symptom of lack of demand for new homes, not a lack of supply of new homes.
On September 26, I wrote New Home Sales Decline 7.6%, Median Price Down 3.1%: “Very Positive” Says Econoday.
New home sales fell 7.6% in August to a seasonally adjusted annualized rate (SAAR) of 609,000 units.
Very Positive Report?
Bloomberg calls the report very positive. Is the report positive at all?
Declining price and low inventory suggests builders are increasingly wary and are targeting lower and lower income levels to make sales.
Given that new home sales declined 7.6%, which genius predicted construction spending would go up by 0.5%?
Total Construction Spending Percent Change From Year Ago
Residential Construction Spending Percent Change From Year Ago
Residential Construction Spending
Residential construction spending is at a level it hit in 2003.
Very Positive or Very Negative?.
Today we see the results of the “very positive” reading by Bloomberg Econoday. Arguably, Econoday got the “very” part correct. If so, they just missed the +-sign.
Mike “Mish” Shedlock
“Generally, builders start construction when someone makes a purchase.”
This is likely true for single family detached homes, but townhouses and condos have to be built in groups and I doubt they wait until all units in a group are sold before they start building.
Home construction is way down where I live compared to the boom years of a decade ago. There’s still some construction, but it takes years to completely sell out a development.
GDPNow cut Q3 growth from +2.4% to +2.2% with this report
https://www.frbatlanta.org/cqer/research/gdpnow.aspx?panel=1
“Declining price and low inventory suggests builders are increasingly wary and are targeting lower and lower income levels to make sales.”
And no way of knowing of builder add ons to get contract signed.
Okay, okay … I’ll throw in a jacuzzi tub + walk in shower … and hardwood floors throughout if you sign this contract at stated price …
A public perception of a good economy supports the incumbent party in an election.
Mike Bloomberg gave a speech supporting Hitlary at the Dummycrat convention.
So naturally, you will see Bloomberg’s news site putting maximum positive spin on all economic news, even though any readers with more than a few functioning brain cells will see it as ridiculous.
Everything declines in every report, and yet jobs continue being created at breakneck pace. I just don’t get it.
Whoever wins in November is going to get hit with the mother of all recessions in 2017 or 2018.
I wish Obama could run for a 3rd term so he would have to own the next recession.