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 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 July was flat at a seasonally adjusted annual rate of $900.8 billion, reflecting a 5.2 percent increase in overall spending from the prior year. Residential construction was up 0.6 percent over the month, and non-residential private construction was up 1.3 percent over the prior month. Public construction in July was down by 0.3 percent from June, at a seasonally adjusted annual rate of $269.4 billion.
Looking at the details, throughout the year there have been large increases in the lodging, transportation and water supply segments of private non-residential construction, and corresponding decreases in the amusement, communications and conservation segments. Construction of churches and other religious establishments is also down significantly. Changes in construction spending have been driven by private sector residential development with private housing up over 17.2 percent, and non-residential up just 2 percent. Government construction overall is down on a year-over-year basis by about 3.7 percent.
While the monthly construction numbers are highly volatile and subject to large adjustments, the annualized figures over the course of the year 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. While the overall year-over-year increase has been falling slightly each month, as interest rates have risen, there is still a substantial risk that the Federal Reserve’s continued policies of forcing down long term interest rates is setting up the next housing market crash.