Census Bureau non-seasonally adjusted (NSA), constant dollar CPIP data showed that October total construction expenditures grew by 2.2% year on year (y/y), to $1220.9 billion (B). Private expenditures advanced 6.4% y/y, while, State & Local contracted by 2.8% y/y. Non-residential CPIP increased by 3.3% y/y to $569.6B.
Construction spending came-in above expectations in October at +1.4% month on month, (m/m) the largest increase in five months. Nonresidential and public construction outlays were especially strong. Single-family construction moved-up 5.6% m/m. After powering residential construction in previous years, multifamily construction has slowed significantly and is now below last year’s spending level. Private nonresidential construction spending rose 0.7% largely as a function of increased office structure outlays. Spending on manufacturing, education and healthcare structures amplified the increase. Public construction outlays have increased significantly for two consecutive months. Large increases in conservation and development structures, healthcare structures, and public safety structures contributed to the strong performance. Highway and street construction recorded a significant increase topping seven percent following a long stretch of declining public sector spending this year. Expenditures are now slightly above last year’s level.
Total Construction: Table 1 presents CPIP data for total construction for both 3 and 12 month y/y metrics. Momentum, defined as 3 month minus 12 month is also shown. Momentum provides market direction with green indicating stronger activity and red indicating slowing activity. Private construction accounted for 74.3% of the total three months expenditures ending in October. State & local spending accounted for 23.8%, leaving 1.9% for federally financed projects. The private sector posted 6.4% and 3.4% growth for 3 and 12 month y/y comparisons resulting in negative 3.0% momentum for the month of October.
Single family residential construction recorded 11.1% growth on a three month basis, much stronger than the 8.3%, 12 month y/y score. A momentum score of 2.8% indicates solid future potential. Nationally there is a significant undersupply of existing homes causing prices rise. A strong job market, low interest rates and pent-up demand is driving demand which is expected to continue.
On a three and 12 month moving average basis, State and local total construction was still in the red, off 2.8% on a rolling 12 month basis and down 0.8%, on a three months y/y basis to $87.3B. Momentum was positive 2.0% after a 13 month string of negative postings.
The infrastructure project groups recorded negative growth for both 3 and 12 month y/y for all project groups except Conservation. The good news is the every category recorded positive momentum in October indicating that spending is on the rise.
Non-residential Construction: Table 2 shows the breakdown of non-residential construction (NRC). The overall growth rate was negative 1.3% on a 3 month y/y basis and +3.3% on a 12 month y/y comparison resulting in negative 4.5% momentum.
The growth rate of private NRC was negative 3.0% for the 3 months ending October, less than the rolling 12 month value of 4.2%, leading to negative momentum of -7.2%. This is the second month in a row that the 3 month y/y growth rate has been negative after 74 months in the positive column.
Figure 1 charts the NSA rolling 12 month expenditure history from 2009 to present. Expenditures (black line) are read on the left Y axis in constant 2009 dollars. The year on year change, (green bars) are read off the right Y axis. Total non-residential expenditures was recently at its highest point since our data began. It has now started to plateau. This may mean that we have reached the peak of this construction cycle or it may be a temporary lull. It will take several more months of data to establish which. One thing for certain is that the y/y percentage change is on a continuous downward slope.
Looking at the project categories within non-residential buildings, some are exhibiting strong growth while others are declining. Commercial, Recreation and Lodging construction were the only segments to post growth on both 3 and 12 month rolling total y/y metrics. Commercial construction was up 11.9% y/y 3 months y/y and +17.6%, 12 months’ y/y. Values of +5.6% and +9.0% for 3 and 12 month y/y growth were posted for Recreation projects. Lodging also recorded a strong 12 month y/y number, (7.9%) but softened quite a bit on a 3 month y/y comparison, (1.6%). Multi-story residential scored respectable growth on an annual basis at +5.7% but slowed dramatically to -0.2% when observed on a 3 month y/y metric.
Sectors that are recording contracting expenditures on both rolling 3 and 12 month y/y comparisons, include: manufacturing buildings, healthcare, and religious structures. Manufacturing buildings recorded the weakest performance, down 19.6% and 11.6% for 3 and 12 month y/y respectfully. Healthcare -3.6%, 3 months y/y and -3.9%, 12 months y/y. Religious structures, -12.8%, 3 months y/y and -11.7%, 12 months y/y. Transport terminals staged a nice rebound with a gain of 7.1% 3 months y/y after declining 0.4% over the past 12 months.
Overall the construction market continues to perform well exhibiting continuing y/y growth from the private sector. Public sector spending moved-up strongly in October is a hopeful sign that we will see a rebound in spending form this sector going forward.
At Gerdau we monitor the CPIP numbers every month to keep you, our customers informed on the health of the US construction market.