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

construction-spending-2016-10a

Residential Construction Spending Percent Change From Year Ago

construction-spending-2016-10b

Residential Construction Spending

construction-spending-2016-10c

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