The Bureau of the Census publishes monthly data on construction spending for both the private and public sector. Since construction is a large part of the nation’s economy, this index provides some indication of how quarterly GDP figures will fare. The Census gets these statistics from a variety of sources and surveys and the figures are subject to fairly large adjustments as more data become available.
The statistics reported by Census measure new construction in the economy. The report contains data on the month-over-month and year-over-year changes in total construction spending by both the private and public sector broken down by residential construction, non-residential construction and public expenditure (government).
Spending on private construction in May was flat at a seasonally adjusted annual rate of $605.4 billion, reflecting a 1.2 percent increase in residential construction and a 1.4 percent decrease in non-residential private construction. Public construction in May was up 1.8 percent over April, at a seasonally adjusted annual rate of $269.5 billion.
Looking at the details, total construction spending is up by 5.4 percent over the same time last year, with residential construction up by nearly 23 percent (from an admittedly low figure). There have been large increases in the lodging, transportation and water supply segments of non-residential construction, and corresponding decreases in the amusement, communications and conservation segments. Changes in construction spending have been driven by private sector residential development with private housing up over 23 percent, and non-residential about flat. Government construction overall is down on a year over year basis by about 4.7 percent.
While the monthly construction numbers are highly volatile and subject to large adjustments, the annualized figures tell an interesting story that is reflective of the poor state of the American economy. Speculation in the residential construction market – brought on by artificially low interest rates, was one of the main causes of the 2008-2009 financial melt-down. Today, this same push can be seen in residential and quasi-residential (lodging) construction spending, without concurrent growth in productive construction spending like that on office, commercial and factory facilities. This suggests that while the Federal Reserve’s policies of forcing down long term interest rates is working to boost the housing market, it is likely also setting up the next housing market crash, since much of this is going toward investment housing rather than owner-occupied structures.