For the second month in a row construction spending came-in above analysts’ expectations. Census Bureau non-seasonally adjusted (NSA), constant dollar CPIP data showed that November’s twelve month total, (12MT) construction expenditures grew by 3.7% year on year (y/y), to $1224.5 billion (B). On a 12MT basis, private expenditures advanced 6.1% y/y, while, State & Local contracted by 2.8% y/y. Non-residential 12MT CPIP increased by 2.5% y/y to $569.6B.
Total Construction: Table 1 presents CPIP data for total construction for both 3 moving total and 12 month moving total y/y metrics. Momentum, defined as 3MT minus 12MT 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 November. State & local spending accounted for 23.8%, leaving 1.9% for federally financed projects. The private sector posted 6.1% and 3.4% growth for 3MT and 12MT y/y comparisons resulting in negative 2.7% momentum for the month of November.
Single family residential construction recorded 10.6% growth on a 3MT basis, stronger than the 9.0%, 12MT y/y score, resulting in positive momentum. A momentum score of +2.8% indicates continue growth going forward. Private residential spending has been a strong performer in 2017, rising 7.9% y/y. Rebuilding activity from the September hurricanes has begun and will boost the outlays throughout 2018. 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 12MT basis, State and Local total construction was in the red, off 2.8%. However on a 3MT month y/y basis, State and Local total construction recorded 0.6% increase in spending. This was the first positive growth on a 3MT y/y metric, after a string of 17 months of negative numbers. In a further encouraging sign, momentum was +3.3%.
The infrastructure project groups recorded negative growth on a 12MT y/y comparison for all groups except Conservation. The good news is the every category recorded positive momentum in November except Highways and streets, (-1.4%) indicating that spending is on the rise. Transportation, Sewage and waste and Conservation all posted positive 3MT y/y expenditures measuring; +1.1%, +0.9% and +31.2% respectfully.
Non-residential Construction: Table 2 shows the breakdown of non-residential construction (NRC). The overall growth rate was negative 0.6% on a 3MT y/y basis and +2.5% on a 12MT y/y comparison resulting in negative 3.1% momentum.
The growth rate of private NRC was negative 2.4% for the 3MT ending November, less than the rolling 12MT value of +3.1%, leading to negative momentum of -5.5%. This is the third month in a row that the 3MT y/y growth rate has been negative after 74 months in the positive column. State and local expenditures were positive for both 3MT and 12MT metrics. The 3MT y/y increase was +4.9%, much stronger than the 0.7%, 12MT y/y growth giving rise to positive momentum of 4.2%. November’s positive percentage posting marks three consecutive months of growth on 3MT y/y basis and two months in a row of positive percentage growth on a 12MT y/y comparison.
Figure 1 charts the NSA rolling 12MT 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 a few 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 transportation terminal construction were the only segments to post growth on both 3MT and 12MT y/y metrics. Commercial construction was up 13.1%, 3MT y/y and +17.6%, 12MT y/y. Values of +3.6% and +7.6% for 3MT and 12MT y/y growth were posted for recreation projects. Transportation terminal recorded strong 3MT y/y growth of +9.5%, far stronger than the +1.6% growth measured on a 12MT basis leading a strong momentum score of +7.9%.
Sectors that are recording contracting expenditures on both rolling 3MT and 12MT y/y comparisons, include: manufacturing buildings, healthcare, and religious structures. Manufacturing buildings recorded the weakest performance, down 16.7% and 12.2% for 3MT and 12MT y/y respectfully. Three month y/y total expenditures have been in the negative column for 19 months in a row. Prior to that there was a 57 consecutive month period of strong growth in this sector. Healthcare recorded -2.0%, 3MT y/y and -3.7%, 12MT y/y. Religious structures, -11.2%, 3MT y/y and -13.0%, 12MT y/y.
Overall the construction market continues to perform well exhibiting continuing y/y growth from the private sector. Public sector spending moved-up strongly in November 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 U.S. construction market.