Core Construction Spending Registers a Flat Reading After More than Three Years of Declines

Bottom Line

  • Construction spending slipped 0.6% in May.
  • However, construction spending excluding improvements-a better measure of activity than total construction spending-was flat.
  • Private construction slipped 0.4%, with residential down 2.1% and nonresidential up 1.2%.
  • Public construction fell 0.8%-8th straight monthly decline.

Outlook

In evaluating this report, we recommend subtracting out the residential improvements because this category is badly estimated (for that reason, it is not itemized in the report). Excluding improvements, spending was flat. This spending category has been declining steadily since October 2007, so a flat reading is good news.

Private nonresidential construction increased for the third time in four months. Although it is too soon to make a call, it may have at last hit bottom. This category peaked in October 2008.

Private residential spending slipped 2.1%. Excluding improvements, though, private residential was down only 0.5% on declines in both single-family and multi-family home construction. Multi-family housing starts and permits appear to be turning around, so spending on multi-family housing should improve going forward. Single-family starts/permits are still stuck near the bottom, and we are not seeing any light at the end of the tunnel.

Public construction was down for the eighth straight month on declining infrastructure spending. The outlook for public construction is for further declines during 2011 and 2012.

This release contained minor historical revisions. Construction spending declined 15.3% in 2009 (previously 14.9%) and 11.3% in 2010 (previously 10.4%).

Loading