Construction spending rose 0.3 percent in September but outlays for August were revised lower and now show a gain of just 0.1 percent, compared to the initially reported 0.5 percent rise.
Longer-Run Trends Show Only a Slight Hint of Improvement
Overall construction spending rose slightly more than expected in September but the larger gain was largely due to a downward revision to the prior month’s data. The monthly data are extremely volatile and the initially reported figures are often revised substantially. Moreover, deviations due to sampling error are typically much larger than the reported monthly change in the series.
The September data were likely impacted by the hurricanes, which disrupted building activity in Texas, Florida and some other parts of the South during August and September. Hurricane damages may have boosted public construction spending. Total public construction outlays rose 2.6 percent in September, with spending for power projects jumping 11.0 percent and outlays for conservation and development surging 12.6 percent. That latter category includes outlays for dams, levees and jetties. Spending for highway and street projects rose 1.1 percent during the month and spending for transportation projects rose 5.0 percent. Public spending for all of these categories remains down year-to-year, however, which is a testament to the sustained drag that government spending cuts have placed on overall construction spending and the economy.
Within public construction spending, outlays for state and local government projects rose 2.5 percent, while outlays for federal projects increased 3.4 percent. That marks the first increase for federal government construction spending since May and is only the second increase in the past six months. We like to utilize a 12-month change of a 12-month moving average for both series, which smooths out much of the monthly volatility. On this basis, state and local government spending is the weak spot, with outlays down 3.5 percent year-to-year. Federal government outlays are essentially flat on this basis.
Overall construction spending in the private sector fell 0.4 percent in September, with spending on nonresidential projects falling 0.8 percent and spending for residential construction unchanged. Oddly enough, spending for both single-family and multi-family construction rose modestly in September, climbing 0.2 percent and 0.6 percent, respectively. Spending on home improvements tumbled 0.6 percent, however. We expect to see that drop reversed in coming months, as homes are repaired following the recent hurricanes.
Private nonresidential construction has seen persistent weakness with reduced spending for manufacturing projects accounting for much of the recent slide. Within manufacturing, most of the drop has been in construction of new petrochemical facilities, which had surged around the middle of the decade but have pulled back considerably in recent years.
