The Census Bureau reports November Construction Spending rose 0.9% from October. That’s a 10-year high, but it’s highly unlikely to last.
U.S. construction spending rose more than expected in November, reaching its highest level in 10-1/2 years, which could provide a lift to fourth-quarter economic growth.
Spending on private construction projects jumped 1.0 percent in November to its highest level since July 2006 as single-family home building, as well as home renovations, increased.
Investment in private nonresidential structures — which include factories, hospitals and roads — rose 0.9 percent after tumbling 1.5 percent the prior month.
Public construction spending gained 0.8 percent in November to the highest level since March. It was the fourth straight month of increases. Outlays on state and local government construction projects rose 0.6 percent, also gaining for a fourth consecutive month.
Federal government construction spending surged 3.1 percent after rising 0.2 percent in October.
As expected, the Econoday parrot is singing happy tunes.
Construction had been lagging through most of 2016 but, like the factory sector, appears to have picked up steam going into year-end. Spending rose 0.9 percent in November which just tops Econoday’s high estimate and is the best reading since June.
Residential spending rose 1.0 percent in the month on top of October’s 1.6 percent gain. The gain here is concentrated in single-family homes which offset a monthly dip for multi-family units which otherwise have been leading the residential sector. Home improvements added to the spending in November.
Non-residential spending was also strong, up 0.9 percent which most categories showing gains led by office construction and transportation construction. Public spending was also solid including a 3.1 percent monthly jump in Federal spending.
The breadth of gains is most impressive in this report, one that will give a lift to fourth-quarter GDP estimates.
Six Reasons Boom Won’t Last
The construction boom is in its last legs. Here’s six reasons why.
1. Mortgage rates are rising and the Fed expects more hikes.
Since July, mortgage rates are up nearly a full percentage point.
2. Housing Starts Dive 18.7 Percent
New Residential Construction Details
- Permits down 4.7% from October
- Permits down 6.6% from year ago
- Starts down 18.7% from October
- Starts down 6.9% from year ago
- Completions up 15.4% in October
- Completions up 25% from year ago
3. There’s a Glut in Luxury Apartments
High-end sales and leases have been helped by the rising stock market. The market is insanely priced, yet investors expect more.
5. Online sales killed department store sales. See Retail Sales Unexpectedly Dive: Spotlight on Cars and the “Amazon Effect”.
6. 21 states plus D.C. have minimum wage hikes this year. See Fight for $15: Nineteen States Increase Minimum Wage January 2017
Retail stores, especially box department stores and fast food restaurants, will not want to expand rapidly in an environment where interest rates are up, wages are up, and sales are slow because of online competition.
Mike “Mish” Shedlock
All the reasons you point out will affect housing. But housing is a local and regional issue. The market in one area of the country behaves differently than another. Retirees moving to AZ and FL might have to delay moving if their existing house won’t sell.Another factor is weather. Not too many people want to start construction in the winter in some areas of the country.
Fred Rogers said:
Of the six reasons, the 4th is the best! (its invisible?)
The really big elephant in the room that Mish won’t mention is Obamacare costs.
Money that might have gone toward mortgage payments was already stolen to pay for Obama’s fantasy “success”.
Mish is worried about an extra 1% mortgage rates, while ignoring 30% increase in Obamacare costs….
& the mortgage cost is for asset acquisition, OC for something you hope you never need.
A 1% rise in mortgage rates equates to a 20% rise in monthly payments for many. It’s a huge deal.
Fred Rogers said:
Higher mortgage rates only impacts those who buy a new house or refinance an existing house. If you are a home owner now, you can avoid the higher rates by just staying put. If you are a renter, there is a glut of rental options the next time your lease renews.
Obamacare disaster effects every single person. And for those who actually run the numbers instead of making dumb political excuses — a 30% obamacare increase amounts to 2-3 times the interest on a 30 year mortgage of an “average” house.
Do the math. Lets say you finance $400K (average price house according to FNMA/FHLMC) and you have 0% equity (you finance entire amount). A 1% increase would be $400 per month, ****IF**** you get a new mortgage (which is a small percent of the population).
Everyone is paying that amount extra per month for Obamacare fraud… and you will pay even more next year and every year after until the crime is repealed. Despite the empty promises and constant lying, 30% increases is the norm with plenty of places raising premiums more than 50%.
Your 30yr mortgage payment is not going up next year. The 1% rate increase is a one time increase (if you get a new mortgage) and mortgage interest is tax deductible. If anything, one would expect MORE home sales as people seek to lock in rates before they go up… Why would people delay a new mortgage just so they could pay even more a year from now? THEY WOULDN’T.
Home prices are too high (compared to income levels), existing debt levels are too high — and 200% of consumer discretionary cashflow is being diverted to pay for Obamacare fraud.
Obama was a terrible terrible president, and the country will pay dearly for his ineptitude for many years. Good riddance to a world class loser. (not sure Trump will be “great”, but if he is simply “average”, he will be much better than Obama)
Some countries are almost all variable mortgages, US is most all fixed rate.
That said, house owners going uw and a downturn in economy due to credit contraction might make fixed rate payments increase in real terms vs. say wages.
I went to checkout some new town homes near where I live. They’re insanely over priced. A 4 story house that’s maybe 20 feet wide is starting at $680K. The stairs alone take up roughly 20% of the house. You can buy a 4000 sq ft home on an acre a mile away for the same price. There will be restaurants within walking distance, but at the rents they’ll be charged, you’ll be way overpaying for dinner too.
Much of the new construction seems in some way connected with government. One of the several projects proposed in the city where I live reflects what is happening across much of America. We should all be concerned at how financial restraint is being cast aside to create cookie-cutter cities and an illusion of growth.
Below are some of the details of what is occurring in the city where I live. When all is said and done I fear the taxpayers will be presented with a bill for these boondoggles and the current exuberance.
Tony Bennett said:
Freddie Mac 3 weeks ago –
“This week’s mortgage rate survey was completed prior to the FOMC announcement. The 30-year mortgage rate rose 3 basis points on the week to 4.16 percent. The MBA’s Applications Survey posted drops in both refinance and purchase applications, registering the impact of recent mortgage rate increases. If rates continue their upward trend, expect mortgage activity to be significantly subdued in 2017.”
MBA today –
WASHINGTON, D.C. (January 4, 2017) – Mortgage applications decreased 12 percent from two weeks earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending December 30, 2016. The results included adjustments to account for the Christmas holiday.
The Market Composite Index, a measure of mortgage loan application volume, decreased 12 percent on a seasonally adjusted basis from two weeks earlier. On an unadjusted basis, the Index decreased 48 percent compared with two weeks ago. The Refinance Index decreased 22 percent from two weeks ago. The seasonally adjusted Purchase Index decreased 2 percent from two weeks earlier. The unadjusted Purchase Index decreased 41 percent compared with two weeks ago and was 1 percent lower than the same week one year ago.
Todd Fisher said:
And yet no one has mentioned the glowing bomb in the corner of the room. US DEBT. We hit $19.98 trillion this morning. Anyone doubt Obama would leave before Jan. 20 under $20 trillion? Nope. And the Fed wants to increase rates? Who are they kidding. Even now Republicans are saying we can’t afford a huge tax cut because of the debts and deficits. Can you say “tax increases” in our future..lol. You bet your ass. And the real kicker is a few years away, when the dollar is replaced by the IMF SDR for global trade. According to Jim Rickards, when that happens, our cost of living will likely double. And people, who cannot see the freight train heading our direction, want to take on MORE debt? God help them.
Any growth will drive massive inflation as the only means of containing it is interest rates. Massive public and private debt will default if rates rise much at all and if all that money that has been pumped into the system catches fire, we either burn to death or suffocated trying to put the fire out.
but at the same time the inflation would be discounting the debt… kind of leaves you running in the same place if you think about it…
btw… your question on life fulfillment.. maybe it starts by changing your name to happyascanbe…. kind of a Tony Robbins it’s important the message you tell yourself thing… just sayin’
The key to happiness is contentment. The “owell” infers I have come to some peace with my outlook. Looking for true happiness is seeking ignorance if it means you must ignore the reality that surrounds you. Otherwise, you do acknowledge reality which would naturally make you “madashell” while accepting it with “owell”.
Government debt – the $20T – is NOT a problem. The bigger the better, ie wealthier, the nation is. Why? because it’s mostly investor deposits stored at the Fed getting interest, ie., a savings account. Calling it a debt is just an accounting notation from the Fed’s point of view. They have to pay it back, but to do that they just reverse the accounting to re-credit the investor’s own account. All back to zero.
Private debt. Now that IS a problem
Todd Fisher said:
Then why the “f” do we pay taxes, and have tax increases if debt does not matter? Why is the Fed balking at Trump’s stimulus if debt is not an issue? Your theory has been debunked numerous times by numerous people. You’re on the wrong side of history bro. Every fiat currency in history has failed due to rising public debt, which stokes inflation, when ultimately destroys the purchasing power. Get it??
Justin Roth said:
Taxes are NEVER paid to pay back debt. Taxes are a control mechanism for inflation. They are also a mechanism of wealth transfer from the middle class (producers) to the wealthy class (0.01%). Some of it is used for useful idiots to buy votes.
In a debt based economy as ours, very single dollar is created through debt. If everyone would pay back the debt, there will be no money in the economy. Pay back debt means money supply contraction, which means recession or depression. It is a perverse system created by the FED and for the FED, owned by the largest banks in the nation. Taxes are used to pay interest to the banking cartel for money they created out of nothing and lent to the government. The FED is not a government entity but a private cartel. Its employees are not part of the government.
I’ll disagree with you… predicated on the following.
Let Y = current year; Y1 = previous year… etc
Let A = appreciation in %: A1 = previous year appreciation… etc
(Y*(A*.4)) + (Y1*(A1*.3)) + (Y2*(A2*.2)) + (Y3*(A3*.1))
If the result is a number greater than available rates, people will purchase…
The greater the number over rates, the more the more people will care less about rates.
Facts for me are what i see on the ground and what I see going on daily. I know a lot of construction people including my brother’s large crane company. He does both both public/private jobs probably 70% private. Everybody has been flat out crazy busy for at least 2 years.
He has 80% of his cranes out every day, having his 2 best years ever.
Always confused on how we are really doing as an economy.