Construction Spending Falls

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.

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.