Housing Leading Construction Sector

Strength in housing is leading the construction sector, making for a respectable 0.4 percent rise in overall construction spending during May. Residential spending rose 0.8 percent led by a 1.6 percent increase for new multi-family units, a 0.9 percent rise in home improvements, and a very useful 0.8 percent increase in new single-family homes. Year-on-year, residential spending is up a very strong 6.6 percent vs 4.5 percent for overall spending.

Spending overall is being held back by non-housing with private nonresidential spending down 0.3 percent in the month for only a 1.8 percent rise on the year. Manufacturing is the weak spot here, down 2.4 percent on the month and down 11.0 percent on the year to belie indications of strength in business investment. Office spending, however, is a positive, up 1.4 percent on the month for a 9.7 percent year-on-year gain.

Public spending is mixed with the educational component up on the month but only 0.4 percent higher on the year with highways & streets down on the month but still up 5.8 percent on the year. Federal spending is down 5.5 percent on the year with state & local spending, a much larger category in this report, up a solid 5.6 percent.

Spots of weakness aside, gains in housing and particularly single-family homes are major positives, pointing to strength for new home sales and also construction employment with related payroll data to be posted in Friday's employment report. Note that today's report includes annual revisions and that revisions to the two prior months are mixed with April revised sharply downward, now at plus 0.9 percent, but March revised sharply upward to a dip of 0.9 percent.