Construction Decline Bottoming

The AP reports:

U.S. builders spent more in October on homes, offices and shopping centers, pushing construction spending up for a third straight month. Despite the gains, construction spending remained depressed.

Construction spending rose 0.8 percent in October to a seasonally adjusted annual rate of $798.5 billion, the Commerce Department said Thursday. While an improvement, that's barely half the $1.5 trillion that economists consider healthy. And through the first 10 months of this year, construction spending is 2.9 percent below the dismal levels from 2010.

While things do remain well below normal levels, but not nearly the "half" quoted above. Even during the boom times earlier last decade, the US never approached the $1.5 trillion "healthy" figure (though I would note the below is in nominal terms, thus in real terms would look worse).

Source: Census

Construction Disappoints

BusinessWeek details:

Construction spending in the U.S. fell in May for the first time in three months as homebuilders cut back and work on factories and transportation structures decreased.

The 0.2 percent drop was less than forecast and brought spending down to $841.9 billion, Commerce Department figures showed today in Washington. The government revised the April increase down to 2.3 percent, less than previously estimated.

The chart below details the change (in some cases collapse) in sub-components of non-residential construction over the past 12 months.

Source: Census

The Religious Construction Collapse

Reuters reports:

Supercheap, few-questions-asked loans were a temptation even churches could not resist, but now they are paying for their sins as the debt crisis enters the house of God.

Long considered among the safest of borrowers, churches gambled on real estate at a time when credit copiously flowed and lenders were startlingly lax.

But places of worship have since been battered by the economic downturn. Donations have dipped, investment returns have plunged and bank credit is still hard to come by.

"You build it and they will come. It really was true through the years," said Brad Hampton, executive pastor at the Faith Center of Rockford, Illinois. "They like newness," he says of younger churchgoers.

The decline in religious construction ended post-Internet bubble and never re-emerged with the residential / commercial boom and subsequent collapse.



Source: Census

We're All Socialist Now

Ignore the taxpayer funded banking bonuses for now (that is definitely not socialist, but more akin to feudalism) and check out the following definition of socialism (per Wikipedia):

Socialism refers to the various theories of economic organization advocating public or direct worker ownership and administration of the means of production and allocation of resources, and a society characterized by equal access to resources for all individuals with a method of compensation based on the amount of labor expended.

With that in mind, lets look at the change in construction spending over the last 12 months and see who is controlling more and more of that spending.



And control over marginal spending power of the consumer? Lets look at the year over year change in real personal income vs. the similar change in personal current transfer receipts, which consists mainly of government social benefits (unemployment, welfare, medicaid, etc...).



Not saying this is or isn't necessary... just saying.

Source: Census / BEA

Private Construction Slump Continues

Marketwatch details:

Spending on U.S. construction projects was flat in October and revised data now indicate that spending has not risen since April, the government reported Tuesday.

Overall, spending on construction projects barely changed in October, following a revised fall of 1.6% in September, the Commerce Department said. This was the biggest drop since January.

The revision was startling because September was previously estimated to be a gain of 0.8%. Year over year, construction spending is down by 14.4%.

One bright note was that spending on private housing projects rose 4.4% in October. This marked the largest gain in the sector since March 1998.

Not sure how good the news is that the level of private housing construction has increased in a period marked by a glut of homes for sale (the power of subsidies), but it does feed into short term GDP none-the-less.

Outside of this (non-needed?) residential construction, private construction continues to deteriorate (well, except schools). In the most recent three month period, the level of construction has decreased an amazing non-annualized 9% from already low levels.

Source: Census

"We're All Socialist Now" Construction Edition

Forbes details:

US construction spending unexpectedly fell by 0.2% in July to its lowest level since February 2004 as private nonresidential construction fell for the third consecutive month and public construction saw its first decline since January, the Commerce Department reported today.

Economists were expecting spending to be unchanged in the month after rising 0.3% in June, which has since been revised down to a 0.1% rise. Consistent with recent woes in the commercial real estate market, private non-residential spending fell 1.2%. Declines were seen in nearly every non-residential spending category except for religious, communication and manufacturing. Private residential spending rose 2.3% in the month, marking the largest increase for this sector since September 2008 and pushing total private construction spending up by 0.1% in July. Despite last month's gain, private residential construction spending is still down 27.8% over the last twelve months.

What isn't detailed in the article is the MASSIVE divide between public and private construction. I can't decide if this is good:

• Stimulus for the economy
• Replacing construction that would / should come from the private sector

or bad:

• Unneeded construction (i.e. the private sector knows better /overcapacity as is
• Increased debt to pay for construction

Thoughts?

Source: Census

Construction Spending on the Rise

Bloomberg reports:

Spending on construction in the U.S. unexpectedly rose in April as the housing slump eased and more commercial projects got under way.

The 0.8 percent gain was the biggest since August and followed a revised 0.4 percent increase the prior month, the Commerce Department said today in Washington. Residential construction climbed 0.6 percent and work on power plants and factories propelled commercial construction up.

Year over Year

Month over Month

Bloomberg continues:

Federal and local government spending will ramp up as funding from the $787 billion fiscal stimulus package filters through to worksites. Borrowing rates near historic lows and improving business and consumer confidence may help stem the worst housing slump since the Great Depression

Public spending has shown relative strength in year over year figures, but...

Year over Year Public Spending

The only concern I would have is whether we have enough public projects lined up. While month over month data points do not necessarily mean a trend (and likely do not), April's construction spending jump was in spite of (not due to) a 0.6% drop in public construction spending.

Month over Month Public Spending

Source: Census

Construction Spending on the Rise: Religious Facilities Left Out

Bloomberg details:

Spending on U.S. construction projects unexpectedly rose in March for the first time in six months as increases in commercial and government projects overshadowed an ongoing drop in home building.

The 0.3 percent gain followed a revised 1 percent drop the prior month, the commerce Department said today in Washington. The advance in non-residential projects was led by building of power plants, hotels and factories.

Spending on infrastructure projects is projected to increase in the coming months as state and local governments use funds from the $787 billion fiscal stimulus package. In addition, mortgage rates at historic lows may support sales of new homes, helping the economy begin to recover later this year.

Source: Census

The Public Construction Boost

Reuters details:

U.S. construction spending fell at a slower-than-expected rate in February, a government report on Wednesday, suggesting that the pace of deterioration was start to moderate.

The Commerce Department said spending on construction projects slipped 0.9 percent to a seasonally adjusted annual rate of $967.5 billion, the lowest since March 2004, after falling by a revised 3.5 percent in January.

Analysts polled by Reuters were expecting a 1.8 percent decline in overall construction spending in February. Compared to the same period a year-ago, construction spending dropped 10 percent. Spending in the first two months of 2009 is down 10.9 percent versus the same period last year, the department said.

Total Construction

Private residential construction spending tumbled 4.3 percent in February to $275.1 billion, the lowest since December 1997, after falling 3.7 percent the prior month.

Private Construction

Spending on public construction rose 0.8 percent in February, the biggest gain since October, versus a 2.4 percent decline in January, while spending on private nonresidential structures increased 0.3 percent after falling 4.3 percent the prior month.

Public Construction


Source: Census

Construction Spending November

Per Interest Rate Roundup:

The latest figures show construction spending was down, but not out, in the month of November. Total spending declined 0.6% against market expectations for a decline of 1.4%. October's decline was also revised to just -0.4% from a previously reported drop of -1.2%.

The residential market continues to be a lead anchor, with private residential spending down 4.2% -- the biggest decline since July's -6.2% reading. Private nonresidential spending, on the other hand, increased 0.7% after a 0.4% decline in October. Within the private nonresidential sector, spending on lodging was up 0.7%, spending on office property rose 0.9%, spending on transportation projects jumped 3.2% and spending on power facilities climbed 5.3%.

Looking at the longer trend (year over year rather than month over month), residential construction has gotten absolutely crushed. One area of huge growth has been manufacturing, which I have no explanation for. It looks like the media is confused as well. See if this commentary by Zacks makes any sense:

Construction in manufacturing also increased by 61.5% over the past year, as the manufacturing sector had been struggling during this economic recession, as evidenced by the ISM Manufacturing announcement on Friday, a 28 year low.

Source: Census