Historically, the Census Department makes huge revisions date back as far as 10 years.
Today Econoday notes construction spending is up 0.5%, the first increase in three months, but that follows huge revisions.
The construction spending report is often volatile and today’s results are an example. The headline is up a solid 0.5 percent in August but July’s decline, initially at 0.6 percent, has been downgraded sharply to minus 1.2 percent.
Spending on residential construction rose 0.4 percent but July’s initial increase has been cut in half to 0.2 percent. Yet there is standout August strength in multi-family spending which rose 0.9 percent but is still short of reversing July’s 1.2 percent decline. Single-family spending is constructive, at 0.3 and 0.4 percent gains the last 2 months. Home improvements are also positive, with gains of 0.5 and 0.3 percent.
Turning to the nonresidential side, spending rose 0.5 percent but follows declines of 1.4 and 1.2 percent in the prior 2 months. Transportation is leading the way in this group, up 4.4 percent on the month and 17.6 percent on the year. Manufacturing is the laggard, down 4.3 percent in August for a yearly 20.8 percent decline.
Public building has been weak all year though educational building did rise 3.5 percent yet is still down 2.8 percent from a year ago. Federal spending fell 4.7 percent in the month for an 8.3 percent decline.
Overall construction spending shows only a 2.5 percent year-on-year rise despite a very favorable 11.6 percent increase in residential construction. Yet residential starts and permits have been uneven pointing to the risk of slowing in the months ahead.
Huge Revisions in Both Directions
The Econoday synopsis does not do justice to what really took place.
I downgraded my final estimate of second-quarter GDP to 2.5% largely because of construction spending.
The commerce department reports Construction Spending in June fell 1.3% vs an Econoday consensus of a 0.5% gain. As a small consolation, the Commerce Department revised May spending from +0.0% to +0.3%.
“Construction spending during June 2017 was estimated at a seasonally adjusted annual rate of $1,205.8 billion, 1.3 percent below the revised May estimate of $1,221.6 billion.”
Today we see this revision to June.
Last month we saw this revision
It’s October, the fourth quarter is underway, and the census department is still revising data for start of the second quarter.
June construction spending initially reported, was 1.3 percent below the revised May estimate of $1,221.6 billion.
Today we see June was $1,226.4 billion. Thus, the initial 1.3% decline to start the second quarter morphed into a 0.4% gain.
July was bad primarily in context to an upwardly revised June. Add it all up and it looks less negative than originally reported.
I took the construction report and revised retail spending reports into my final second-quarter estimate, reasonably so, at least I thought.
Mike “Mish” Shedlock