The Census Bureau's Residential Construction Report shows sustained weakness in private spending. Residential construction spending is down every month in 2019.

Total Construction

Construction spending during May 2019 was estimated at a seasonally adjusted annual rate of $1,293.9 billion, 0.8 percent below the revised April estimate of $1,304.0 billion. The May figure is 2.3 percent below the May 2018 estimate of $1,324.3 billion. During the first five months of this year, construction spending amounted to $498.8 billion, 0.3 percent below the $500.3 billion for the same period in 2018.

Private Construction

Spending on private construction was at a seasonally adjusted annual rate of $953.2 billion, 0.7 percent below the revised April estimate of $960.3 billion. Residential construction was at a seasonally adjusted annual rate of $498.9 billion in May, 0.6 percent below the revised April estimate of $501.7 billion. Nonresidential construction was at a seasonally adjusted annual rate of $454.3 billion in May, 0.9 percent below the revised April estimate of $458.5 billion.

Public Construction

In May, the estimated seasonally adjusted annual rate of public construction spending was $340.6 billion, 0.9 percent below the revised April estimate of $343.7 billion. Educational construction was at a seasonally adjusted annual rate of $79.3 billion, nearly the same as the revised April estimate of $79.3 billion. Highway construction was at a seasonally adjusted annual rate of $111.6 billion, 3.2 percent below the revised April estimate of $115.4 billion.

Econoday Comments

May was an unexpectedly weak month for the US construction sector and will be pulling back early second-quarter GDP estimates. Construction spending fell 0.8 percent in May and below Econoday's consensus range. Residential spending continues to be the weakest element of the report but May's data include declines for non-residential spending as well, both public and private.

Residential spending fell 0.6 percent in May and now shows declines each month this year. Compared to May last year, residential spending is down a very steep 11.2 percent. The greatest area of weakness also offers a reading on consumer discretionary spending as home improvements, in their own long string of declines, are down a year-on-year 22.0 percent. Single-family homes, the dominant category on the residential side, fell in May and are down 7.6 percent on the year. The one residential plus is new multi-family homes which, reflecting demand tied to high costs for single-family homes, are up 9.3 percent.

Public spending has been propping up total construction spending all year but May shows some cracks including declines for highway & streets and no change for educational building. Both Federal and state & local spending fell in the month but remain higher on the year, up 4.7 and 11.2 percent respectively.

Private nonresidential spending has been flat and was fractionally lower in May, at minus 0.1 percent on the year. Spending on manufacturing, office construction, and commercial construction all declined in May.

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Yet boosted by a sharp turn lower for mortgage rates, 2019 was supposed to be a year of promise for the construction sector. But the sector so far, including for the second quarter, doesn't look like it will contributing much to overall economic growth.

Construction Spending by Category

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Key Negatives

  • Private Residential Single Family
  • Private Commercial
  • Private Power

Key Positives

  • Public - Highway and Street
  • Public - Sewage
  • Private - Manufacturing
  • Public - Transportation
  • Private - Multifamily

I used $25 billion as the cutoff point for highlights.

Four Key Discussion Points

  1. The biggest point itemized point is new single family construction. It dwarfs multi-family. One needs to pay attention to the to housing starts because multi-family starts leading the way is not a good sign.
  2. A collapse in single-family is a collapse in family formation.
  3. Commercial construction is another huge negative. Stores are not expanding, and why should they? There's a saturation of restaurants and retail stores at a time when sales growth is online.
  4. Year-over-year manufacturing was a big positive but evidence shows the manufacturing run is over, not just in the US but globally.

The construction spending boat is sinking slowly. The only thing preventing an outright collapse is low-quality public spending.

Mike "Mish" Shedlock

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