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 construction in May was estimated at a seasonally adjusted annual rate of $956.1 billion, slightly above the April estimate, and substantially above the $896.6 billion spent in May of the prior year. Overall, for the first five months of 2014, construction spending is up by 8.2 percent over the prior year. On a year over year basis construction spending in May was generally up, with residential construction up by 7.5 percent, private non-residential construction up by 10.7 percent and public construction up 1.2 percent. By segment, year to date, the big winners have been power plants and grids (up 29.8 percent), hotels (up 18.5 percent) and office construction (up 16.1 percent). On the other hand construction of water delivery infrastructure is off by 10 percent year over year, and construction of medical facilities is off by 8.3 percent.
The general broad increase in construction spending on a year to date basis, seems to contradict the gloomy reports during the winter that bad weather was the main cause of economic slowdown. In fact, looking at this sector in a vacuum would indicate that the economic recovery was particularly robust. But as the chart to the right shows, even with the large increases in spending in 2014, construction activity is still behind the pre-recession levels even on a nominal basis.
While the monthly construction numbers are highly volatile and subject to large adjustments, the annualized figures tell an interesting story. It appears as if the speculative bubble brought on by artificially low interest rates in the mid-2000’s is repeating itself just 10-years later. Large increases in residential and quasi-residential (lodging) construction spending, without substantial increases in households (even accounting for the current flood of immigrants) is simply not sustainable in the long term, and 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 real estate bubble.
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