Construction Spending Yet To Show Strength

Construction spending has to show the strength based on other data including housing starts and permits. Spending fell 0.6 percent in June vs expectations for a 0.6 percent gain. Revisions are mixed with May revised upward from a 0.8 percent drop to a decline of only 0.1 percent but April revised from minus 2.0 percent to a drop of 2.9 percent.

Spending on single-family construction fell 0.4 percent in June to extend a surprisingly negative streak that goes back to March. Year-on-year, construction spending on single-family homes is up only 4.8 percent vs a 16.4 gain for multi-family units where monthly data for June, however, also show contraction, at minus 1.5 percent. A plus for housing data in this report is strength in home improvements as residential spending excluding new homes rose 1.2 percent in the month.

Non-housing is also soft in the report, down 1.3 percent for private non-residential spending which is up only 2.5 percent year-on-year. Manufacturing is showing the most weakness, down 4.5 percent in the month with the on-year rate down 10.4 percent to underscore stubborn weakness in business investment. Public spending is also soft with education down 0.5 percent and highways & streets down 1.4 percent.

Overall construction spending is up only 0.3 percent year-on-year to deepen what is a declining trend. These results will weigh on the expectations for the first revision to second-quarter GDP which came in at a very soft plus 1.2 percent in last week's initial estimate. But there's definitely upward pressure building in other housing data, pressure that points to eventual strength in construction spending.

Recent History Of This Indicator:
Construction spending is expected to bounce back in June, up a consensus 0.6 percent following steep declines in the two prior months of minus 0.8 percent and minus 2.0 percent. Construction spending on non-housing has been soft but spending on housing has been steadily climbing. Recent strength in housing starts is a positive indication for this report.