Construction Spending Edges Only Slightly Higher

Construction spending edged only 0.1 percent higher in July in a month, however, that does show some life for residential spending which rose 0.6 percent. Yet general weakness is still the theme for construction with total year-on-year contraction at minus 2.7 percent and with residential construction at minus 6.6 percent.

Nonresidential construction is barely performing any better than the residential side, down 0.3 percent on the month for year-on-year growth of only plus 0.1 percent. Spending on commercial building fell in the month and is down 16.5 percent on the year though spending on manufacturing building, in a welcome sign of business investment, did rise 1.9 percent on the month and for 3.3 percent yearly growth.

Turning back to residential data, new single-family homes were the strength in July, up a monthly 1.4 percent though yearly contraction is still severe at minus 8.5 percent. New multi-family homes have been doing better than single-family homes, up 5.7 percent on the year though down 1.1 percent on the month.

One area of strength has been public construction, up 0.4 percent in July and up 4.0 percent on the year. State & local spending is up 3.5 percent but Federal spending leads, rising at an annual 9.8 percent rate with gains concentrated in health care and highway & streets.

This year's weakness in the construction sector and specifically in housing has been perhaps unexpected given low mortgage rates that keep moving lower. Though the Federal Reserve hasn't elevated construction to a major concern, today's report, despite isolated improvement, likely adds another weight for a rate cut, and perhaps a large rate cut, at this month's FOMC.