Here’s the kicker: It’s not office related. And the Census Department has heavy negative revisions to spending. Let’s investigate. 
Construction spending reports are so horribly lagging that I stopped commenting on the for a while.
But interesting trends are underway. Also, these late reports will influence GDP revisions.
So I created some new chart this month to show what’s going on.
Negative Revisions
The June Construction Spending report was a disaster.
The Bloomberg Econoday consensus was for a rise of 0.2 percent.
Instead, the Census Department reported a decline of 0.3 percent and it revised May from -0.1 percent to -0.4 percent.
Economists effectively missed the mark by 0.8 percentage points to the downside.
Commercial Construction Spending
Commercial construction spending was down 9 consecutive months.
I thought this might be office spending related, but office spending was up in three of those months and flat in a fourth. Edit: Office and commercial are part of nonresidential, but office is not part of commercial.
Year-Over-Year Spending
Year-over-year spending is still positive except for commercial, but everything is downward sloping.
Year-over-year commercial construction spending went negative in October of 2023 and has stayed there ever since, generally declining.
It’s now down 14.0 percent year-over-year.
Construction Spending Millions of Dollars
Every key component of construction has peaked and is rolling over except for manufacturing.
The latter is due to misguided attempts by the auto industry to roll out EVs and more importantly free money from the Biden administration for autos, chip manufacturing, solar manufacturing, etc.
Commercial Construction Categories
The Census Department has a nice breakdown of Construction Spending Categories.
In general, commercial Includes buildings and structures used by the retail, wholesale and selected service industries.
Offices are part of nonresidential construction as is commercial. But offices are not part of commercial.
Here’s a spotlight on commercial construction.
- Auto: includes auto dealerships, motorcycle dealerships, auto showrooms, and truck dealerships.
- Food: includes supermarkets, bakeries, dairies, markets, convenience stores, and delicatessens.
- Dining/drinking: includes liquor stores, bars, nightclubs, cafés, diners, restaurants, cafeterias, taverns, inns (eat & drink only), and bistros.
- Fast food: includes drive-in restaurants and fast food restaurants.
- Multi-retail: includes department stores and variety stores, shopping centers, shopping plazas, and town centers.
- Other commercial: includes drug stores and pharmacies, hardware stores and lumber yards, clothing stores, jewelry stores, salesrooms (non-auto), furniture stores, office supply stores, storerooms, and electronics stores.
Commercial Construction a Driver of Job Growth
Commercial construction is only $125.171 billion compared to $939.806 billion residential, $483,850 public, and $2.148 trillion total.
However, once houses and roads are built, there are no further directly related jobs. Once stores are built, there are many directly related jobs.
Commercial construction is a tiny component of construction spending but a mighty contributor to future jobs once completed.
The Manufacturing ISM Index Disaster
Despite the boom in manufacturing spending, the July Manufacturing ISM Index Is Lower Than Every Economist’s Estimate
The ISM manufacturing report was a disaster from every angle, especially employment , production, and backlogs. Employment reading worst since June 2020.
Please read what some of the respondents are saying. It a disaster in every industry.
Small Business Employment Growth Is Now Negative
Yesterday, I commented Small Business Employment Growth Is Now Negative (and What It Means)
ADP data shows year-over-year payroll growth is negative 88,000 for small corporations sized 20-49. Trends are negative in all but very large corporations.
On July 26, I commented Expect the BLS to Revise Job Growth Down by 730,000 in 2023, More This Year
At the heart of these revisions is a horribly flawed birth-death model used by the BLS. My calculation closely matches an estimate by Bloomberg’s chief Economist.
In addition to the birth-death model, or perhaps explaining the birth-death model errors, small business employment is declining fast.
Looking Ahead
If businesses are not expanding stores and restaurants, then they won’t be hiring to staff those stores and restaurants either.
“All Hell Breaks Loose” In the Next Few Months as Recession Bites
On July 25, I commented “All Hell Breaks Loose” In the Next Few Months as Recession Bites
Two of us are still adamant that a recession has started. The other is Danielle DiMartino Booth, in her best video yet.
Please take a look.
Correction: I labeled the spending chart as billions. It should say million.
I learned a lot here, Mish. Also, the WORD SALAD of how they plug the numbers in means that HEADLINE numbers can be cherry picked.
Everyone buying more online through Amazon, etc. so more need for Amazon warehouses then large shopping malls.
Maybe Ross and TJ Maxx survive along with big box stores like Walmart and Target.
Pharmacies are less needed as more Rx is mailed out, and I read Amazon is ramping up its pharmacy business.
And work from home has depressed a lot the rental market for office buildings.
But I still see new office buildings going up in some places and immediately you see for lease signs. These are all signs of a loophole in commercial real estate that must be allowing banks and development companies and brokers to all be in on it.
Any losses in those sectors will be covered over by the forces in charge. So, in the end, it does not MATTER at all if Regional Banks are lending into those POSSIBLY killed sectors in the coming CRE crash.
Occupancy rate is key to reach break-even, except when the leases are filled with freebies to lure in tenants.
The problem is lead time. To acquire sites, design and permits, and construction run for years, and once the building process starts it gets very expensive to stop. A lot of owners will continue building with the expectation of completion when the downturn passes.
When you consider how vastly much more the ongoing builders are paying for stuff, a long drop in spending indicates an even greater drop in actual building.
Depends where you live. If you live in D.C. and the outer beltway of it (to include some surrounding states) things are mostly dandy. If you live out of that range not so good. It may even be really horrible. A lot of money is being printed but unfortunately it’s for the cartel and friends and associates of the cartel. Many small businesses closed in my area. I seriously doubt that is happening in Chevy Chase MD where minions of the cartel reside.
Spending on factories shell is rising. Filling those shells takes time and a lot more money. Intel plunged in the AH bc they were fully committed to building new AI foundries in the rust belt but they don’t have the money to complete it without laying off 15,000 employees. Pat Gelsinger shook many hands, like a politician, during Biden’s state of the union 2022.
Since July 2022 residential spending in billions of dollars is down.
`Why build more sidewalks where Democrats pitch their tents? Build a better website and the world will beat a path to your door. The best return on investment is robots, STEM education, automation, server farms, border wall defense, and prisons.
“If businesses are not expanding stores…”
Back in the mid 1980’s on my way to work, i used to pass a clothing store called Fred Segal. Years later i read that they provided wardrobe for an actor on a show we worked on for FOX, called The O.C. This week they shut down the last 2 of their 9 stores.
The last 4 years in Charlotte have seen multiple construction cranes going up across the city for residential and mixed use residential/commercial large structures. They are all in final stages and no new large projects are starting. Rents and home sales prices are being reduced. I think we’re seeing the end of the projects that were financed with cheap money and a slowdown is well underway.
Amazing that given some doubt regarding a fed cut in September, now the sky is falling in the economy.
Who needs more commercial real estate ? I see stuff being build but I think the development companies are doing it b/c there must be a tax loophole and more opportunity for money laundering.
It does seem that commercial sites are built with the “build it and they will come” mentality. But it’s always been that way.
Tons of half filled little strip centers or even cookie cutter “open streets shopping centers” even before C19.
I’m too simple minded and could never grasp the concept of spec building beyond a reasonable demand.
Must be a certain break even point where overbuilding is cheap enough if you can rent out a certain % and hope for more. Then there must be tax write offs as you say to help cover it all.
I think banks got into commercial real estate in a big way once the Fed backstopped it. There are literally 100s of office buildings sitting empty near me and yet more keep going up. It is starting to feel like China building houses and having no one live in them. It seems like this has been going on for some time before Covid and now after Covid. Someone should investigate how they are doing this and continuing to make money on these properties that occupied by no one.