Construction Spending Falls Again

The construction sector has been a stubborn disappointment all year, failing to show much life despite strong conditions in the domestic economy and favorable financing rates. Construction spending in June fell 1.3 percent to miss the low end of the Econoday's consensus range. Year-on-year, spending is down 2.1 percent.

The one positive for the sector has been public spending which, however, fell sharply in June for both educational building and highways & streets. Yet year-on-year, both of these categories are still rising at solid mid-single digit rates reflecting what are strong yearly increases in state & local spending of 5.9 percent and federal spending of 9.7 percent.

When turning to data on the private side of construction the story changes. Private nonresidential construction is down 0.4 percent on the year and June was another soft month with the transportation and power sectors both lower. Manufacturing is showing some life, up in the month and up 10.5 percent year-on-year while commercial building did improve in June but is still down 12.0 percent on the year.

The worst news in the report continues to come from the residential sector where spending is down 8.1 percent from June last year. This despite strong gains in multi-family construction which are being offset by contraction in single-family construction, falling 0.7 percent on the month and down 8.5 percent on the year. And home improvements have likewise been weak, down again in the month and for yearly contraction of 5.1 percent.

This report brings up questions of possible contraction in foreign investment in US real estate and whether construction, like manufacturing, is being pulled down by global slowing and related tariff effects. Watch for construction payrolls in tomorrow's employment report for the first indication on July conditions in the sector.