The construction spending reports by the Census Department remain a complete joke. Once again, heavy revisions are in play.
The Econoday Consensus was for construction spending to rise 0.5%. Instead, spending fell a sharp 1.4%.
Volatility once again hits the construction spending report where an unexpected sharp decline in April, at minus 1.4 percent, is offset by a giant upward revision to March which now stands at plus 1.1 percent vs an initial 0.2 percent dip.
The residential side of the report, at minus 0.7 percent in April, shows the first decline in 7 months, pulled lower by a sharp drop in residential improvements and spending on new condos that offset a solid 0.8 percent gain for new single-family homes.
The non-residential side shows a 0.6 percent decline for private building, hit by contraction for factories and power plants, and a 2.0 percent dip for public building with both highways and education lower.
This report is yet another bad result for April as the upward revision to March pulled spending out of the second quarter and into the first. And it’s the second quarter that is in focus right now and housing, including sales and starts and now construction, have all been disappointing.
2017 Construction Spending Revisions
Revisions Impact on GDP
Compared to last month revisions are not as big. February construction spending rose 0.1 percentage points from the number posted last month. March was a huge revision, however, up 1.3 percentage points vs the prior report.
The March revision will have a small upward impact on first quarter GDP. I estimate 0.1 to 0.2 percentage points.
- Why massive construction spending revisions are the norm is a mystery.
- Why economists thought construction spending would jump this month is an even bigger mystery.
On May 23, I posted New Home Sales Contract 11.4%: Sales Barely Up Year-Over-Year.
Somehow, economists could not foresee a decline in construction spending even though new home sales collapsed 11.4%.
Mike “Mish” Shedlock
I agree. construction reports are baffling lately. Akin to chasing one’s tail.
I much prefer to read quarterly reports and forward guidance from DR Horton, Lennar and Toll Brothers to get an idea of the residential landscape.
Loopnet is a good resource to get a handle on Commercial activity.
A better indicator of construction spending is HD and Lowes revenue. More trustworthy than anything coming out of the gov’t. It’s just not as timely.
Home Depot Q1 comp sales were up 6% and Lowe’s Q1 comps were up 2%. Robust and healthy.
The drop is not due to lack of demand its because of a labor shortage. That is why there is so much housing/new construction inflation. Everyone please send a thank you letter to the masters of the universe at the federal reserve. Who better to run the worlds largest economy than Harvard PhD’s that have no real experience in the business world other than their economic theories.
Tony Bennett said:
“The drop is not due to lack of demand its because of a labor shortage. That is why there is so much housing/new construction inflation.”
Well, at least per these construction reports … private residential year over year.
Doesn’t sound like labor shortage a problem. The question is how much of early year boom due to rising interest rates (The Great Trump Reflation) and the unseasonably mild winter?
Very likely these numbers will be high water marks for the year.
“Very likely these numbers will be high water marks for the year.”
Maybe you are right. But these numbers were never supposed to be this good at this late stage in the game. Remember the recession call in late summer 2011 when the S&P 500 was at 1250 (Lakshman ECRI) that never happened. Blame the FED ?
I have spoken to a number of builders and subcontractors for the construction industry and they say they are capacity constrained because of labor shortages. One person said they couldn’t get any new hires because they can’t pass drug tests and their insurance wouldn’t cover them. I know this is all anecdotal but it is fairly obvious this is true.
Labor shortages are constraining parts of the economy, but construction is the most constrained. It’s a combination of retiring boomers, and restricted immigration.
I read some time ago somewhere on-line (that really helps, doesn’t it) where someone analyzed government economic revisions and found them to be strongly skewed to be in the downward direction. Pump the market and then later, “Oh, yeah, by the way, we were a bit too optimistic last month/quarter.”
Mathew Marty said:
This is why we should cut government jobs.
All the people and $ invested in putting together these reports is a total waste. The same as all the forecasts. They are all useless for most people. Those that want them, should pay for them. For the rest of us, it is just another waste of tax $.
It demonstrates that the DC area is actually just a racket to skim $.
One of the wealthiest areas of the country and they produce nothing but misery for others!
Economist are in the dark when it comes to enderstanding the economy, forecast are based on wishful thinking, projecting a positive outcome is popular. Material reality can be scary and unpleasant so in god we trust!
DEMORATS CONTROL all the FED agencies and all the numbers they put out. It’s ALL political and you can’t believe a word or number they speak or print!!! Go back to trading and investing in basic commodities, they are REAL!!!