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Construction Spending Down in May; Up Year-Over-Year


The U.S. Census Bureau of the Department of Commerce announced that construction spending during May 2016 was estimated at a seasonally adjusted annual rate of $1,143.3 billion, 0.8 percent (±1.3 percent) below the revised April estimate of $1,152.4 billion. The May figure is 2.8 percent (±1.6 percent) above the May 2015 estimate of $1,112.2 billion.

During the first five months of this year, construction spending amounted to $438.5 billion, 8.2 percent (±1.3 percent) above the $405.4 billion for the same period in 2015.

Spending on private construction was at a seasonally adjusted annual rate of $859.3 billion, 0.3 percent (±1.0 percent) below the revised April estimate of $861.9 billion. Residential construction was at a seasonally adjusted annual rate of $451.9
billion in May, nearly the same as (±1.3 percent) the revised April estimate of $451.7 billion. Nonresidential construction was at a seasonally adjusted annual rate of $407.4 billion in May, 0.7 percent (±1.0 percent) below the revised April estimate of $410.1 billion.

In May, the estimated seasonally adjusted annual rate of public construction spending was $284.0 billion, 2.3 percent (±2.6 percent) below the revised April estimate of $290.5 billion. Educational construction was at a seasonally adjusted annual rate of $66.8 billion, 5.4 percent (±3.5 percent) below the revised April estimate of $70.6 billion.

Highway construction was at a seasonally adjusted annual rate of $88.9 billion, 0.2 percent (±8.1 percent) below the revised April estimate of $89.1 billion.

According to Patrick Newport, U.S. Economist for IHS Global Insight, "The key concept in this report, core construction, is not itemized. It's calculated by adding four pieces used as source data in the national income accounts: single-family, multifamily, state and local government and private nonresidential construction. In the first quarter, core spending racked up a respectable 7.3 percent (annual rate) gain. In April, it keeled over because of weather (April was the 21st wettest April on record going back 122 years.) In May, it keeled over again because of an almost across-the-board decline in state and local construction which may simply reflect unstable seasonal factors. Second quarter core construction growth is tracking at -4.0 percent annual rate.

"Single-family construction, which reflects activity in single-family housing starts over the prior 12 months, fell for the fifth time in six months in May, while multifamily construction jumped 1.8 percent, to its second highest level ever," Newport said. "The downward trend in single-family construction is temporary and misleading. Single-family housing permits, the best indicator of the state of the single-family housing market, have been flat this year but are expected to move up because of pent-up demand from young adults. The outlook for residential construction this year is for solid gains driven by a pickup in household formation.

"Private nonresidential spending has been about flat for the last 10 months," Newport continued. "This category consists of 11 subcategories whose recent performances have been mixed – manufacturing and communications are slipping; office, amusement and recreation and lodging are up more than 20 percent from a year earlier; and the remaining categories are either moving laterally or inching up.

"Public spending plunged 2.3 percent in May because of an almost across-the-board decline in state and local construction which may simply reflect unstable seasonal factors," Newport concluded. "This release contained revisions dating back to 2014. The level of total construction is higher than previously reported starting in March 2014. Core construction growth is slightly higher in 2014 than previously reported (11.9 percent vs 10.3 percent), but unchanged in 2015. These revisions will be incorporated into the annual revisions to the national income accounts which come out on July 29."