UPDATE: Construction spending falls as public works edge out home building
By Andrea Riquier
All the data confirms: no relief for house-hunters
The numbers: Construction spending was at a seasonally adjusted annual $1.309 billion in October, 0.1% lower than a revised September spending pace of $1.311 billion, the Commerce Department said Monday (https://www.census.gov/construction/c30/pdf/release.pdf).
Economists surveyed by MarketWatch had forecast a 0.3% monthly increase.
What happened: Any strength in October came from the government. Public outlays on construction projects were 0.8% higher than in September, while private sector spending was 0.4% lower. Both sectors were higher compared to a year ago, public spending by 8.5% and private by 3.9%. In October, public works projects favored schools, spending on which was 2.6% higher than in September, over highway construction, which declined 0.1%.
Big picture: Overall spending was 4.9% higher than in October 2017, and for the year to date, it’s 5.1% higher than the same period last year. But there are some key areas where construction outlays are lagging, notably residential building. Residential spending was down 0.5% for the month, and the average pace of spending over the third quarter is now lower than in the first three months of the year.
Also read:Construction hiring is booming — and there still are plenty of available jobs (http://www.marketwatch.com/story/construction-hiring-is-booming-and-there-still-are-plenty-of-available-jobs-2018-10-05)
What they’re saying: “Discouraging,” said BMO senior economist Jennifer Lee after the data release, noting the private sector sluggishness. “There were some sizeable downward revisions to the prior two months….September’s flat reading is now -0.1%, August’s 0.8% jump is now -0.4%.”
Construction economics analyst Ed Zarenski published a forecast (https://edzarenski.com/2018/11/16/2019-construction-economic-forecast-nov-2018/) on construction outlays from a variety of sources in November. Zarenski expects overall spending will increase 6.5% in 2018 and 4.8% in 2019. But he noted on Twitter (https://twitter.com/EdZarenski/status/1067072489212338177) that construction inflation has hovered just above 4% for the last few years, which means that inflation-adjusted, or real, volume growth will be closer to 1%.
Market reaction: Industrial stocks have suffered this year on concerns about a global trade war. Share of Caterpillar Inc.(CAT) are down 14% in the year to date, slightly better than the 15% decline for Cummins Inc.(CMI) shares.
See:The housing market’s slowdown is going to kill the home renovation boom too (http://www.marketwatch.com/story/the-housing-markets-slowdown-is-going-to-kill-the-home-renovation-boom-too-2018-10-18)