In a report sure to lower third quarter GDP in the next estimate, September Construction Spending dipped 0.4% vs. an Econoday Consensus Estimate of +0.6%.

Some details appear ominous.

Highlights

Construction spending remains weak but indications on housing do show limited improvement. Total construction spending fell 0.4 percent in September for a year-on-year decline of 0.2 percent. But residential spending rose 0.5 percent in the month with this year-on-year rate at plus 0.9 percent. The breakdown here though is mixed as the key single-family category could muster only a monthly rise of 0.1 percent. Multi-family construction is once again the strength, rising 2.0 percent in the month to extend an upward trend that reflects gains in current rental rates.

The real weak area is in the non-residential side of the report where spending on private construction fell 1.0 percent in the month and with public construction down 1.1 percent for its poorest showing since March 2014. Nearly all components on the nonresidential side show monthly declines with commercial, down 2.4 percent, and Federal spending, down 1.9 percent, showing the most weakness.

The construction sector, despite unusually low mortgage rates, has been struggling this year with the softness in single-family housing posing continued challenges for what is otherwise a strong new home market.

“Otherwise Strong”

Econoday’s “otherwise strong” comment is amusing.

We have noted for quite some time that median price has been falling. There are fewer and fewer people who want a new home and can afford one.

In addition, retiring boomers up North want to sell their mansions, move somewhere warmer, and downsize.

Both ideas show up in the stats. Worse yet, private commercial construction looks ominous.

Total Construction

construction-spending-2016-11a

Private Construction

construction-spending-2016-11b

Private Commercial Construction Spending

construction-spending-2016-11c

Private Residential Construction Spending

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Construction Spending Comments

  1. Private single family homes are a measure of future family formation. Year-over-year spending is -2.9%.
  2. Private commercial spending is a measure of future employment. Think Wal-Mart, bars, restaurants, etc. Also consider inventory and durable goods orders to fill the stores. Commercial spending is down 2.4% for the month but up 5.9% from a year ago.
  3. If the dip in private commercial spending is the a start of a trend, the economy is in trouble from a jobs perspective.

Given rising minimum wages, store saturation, and declining corporate profits, commercial spending will decline at some point. Is now the time?

Mike “Mish” Shedlock