Construction spending took an unexpected dive of 1% today vs. an Econoday expectation of +0.5%.
Construction spending fell a sharp 1.0 percent in January but the weakness is in public spending, not residential spending where gains are substantial. Spending on new single-family homes rose 1.1 percent in the month with multi-family spending up 2.2 percent. Year-on-year, single-family spending continues to improve with a 2.3 percent gain while the multi-family category remains very strong at 9.0 percent.
Now the weakness in the report. Public spending posted wide declines including the Federal component, down 7.4 percent in the month, and the state & local component, down 4.8 percent. Totals on educational buildings and highways & streets were all weak.
Private spending on nonresidential building was unchanged in the month with gains for power and manufacturing offsetting declines for transportation, office buildings as well as commercial construction.
But public spending looks to get a boost down the road with new fiscal initiatives while the strength of the report, residential investment, is very solid and looks to improve further given gains in related permits. The housing sector has gotten off to a bumpy start this year though this report is one of strength.
Report is a Joke
The construction spending report is a joke. Massive revisions are the norm, sometimes dating back a decade. Even recent reports have been heavily revised.It does not portend anything at all.
The report does not portend anything at all.
Econoday notes “The housing sector has gotten off to a bumpy start this year though this report is one of strength.”
Econoday is correct about the bumpy start for housing. Thus, the report is not a sign of strength; it’s a sign of more construction report nonsense nearly guaranteed to be massively revised at a later date.
New Home Sales Reports
- January 26, 2017: New Home Sales Plunge 10.4 Percent: In Search of Good News
- February 24, 2017: New Home Sales Rise Half of Economists’ Expectations, Supply Surges
New home sales occur at closing, construction occurs soon after. If we don’t have a jump in sales, there will not be a jump in single-family housing construction unless builders are suddenly building on speculation.
Mike “Mish” Shedlock
From what I observed in SoCal, multi-family housing construction was popping up all over the place and is just finishing up ahead of rising interest rates. Some single family homes, but seemed like niche stuff, mostly tearing down old houses on large lots and replacing with 2 or 3 homes where once only 1 on the lot.
Perhaps the positive in the report is the decline in government construction spending. I mean, how many more school buildings and prisons do we need considering the present demographics? All that roads and bridges stuff is just pork barrel politics to redistribute federal borrowings for vote buying. We do not need another interstate highway system, and states can figure out financing themselves for bridges, schools and prisons. Feds will have to be fiscally conservative, as next round of bank bailouts will make 2008/9 look tiny. Less is better when it comes to federal spending, which is mostly wasted money pissed down the toilet.
LikeLike
Behind the scenes a growing budget deficit is prompting a cut in Federal and state non-mandatory spending. This is happening now under a Republican government which kinds of robs Trumps future infrastructural plans of any validity. Another possible FED hike in March will take the 10 year bond above 2.8% and 30 year mortgage rates to above 4.5% which will crater housing.
LikeLike
I own a company in the Midwest which distributes construction materials for commercial buildings. We have had a mysterious slowdown for the past 3 months.
A contractor customer called today and said, “Are you guys slow? We’re dead. Strangely, we’re getting lots of calls for bids but nobody wants to actually pull the trigger.”
LikeLike