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Construction Spending Is Down YTD

Slight Monthly Gain Though

In spite of overall spending on construction projects recording losses for the year, public sector spending continues to perform well as the outlays were up 0.4% for the month and 5.6% for 2019. Strong subsectors include transportation, waste disposal, highway and street, water supply and sewage at all government levels.

Outlays for construction in July ticked up 0.1% over June, which means for the year, there is a loss of 2.1% as greater labor costs and trade worries continue to slow the industry down.

For the month, spending in the residential sector was up 0.6% but nonresidential expenditures fell 0.3%. The public sector saw a gain of 0.4% while the private sector declined 0.1%. The overall gain was the first in three months.

The drop in year-to-date numbers is influenced heavily by weak spending in the residential market. According to the Wells Fargo Economics Group, "Mounting labor costs and uncertainty regarding the imposition of new tariffs on a litany of imported building materials appear to be holding back construction spending."

The biggest monthly winner was single-family construction spending, which grew 1.4%; the biggest gain since early 2018. The home improvement component added 0.2%, the third consecutive rise spending on multifamily construction slipped 1.1%.

"The solid rise in single-family and decline in multifamily mirror the pattern seen in July for housing starts," the economics group stated. "We suspect the recent softness in multifamily is an indication that apartment construction has topped out. The single-family market appears to be gaining momentum, as lower mortgage rates are bringing buyers back into the market and lower short-term rates are reducing financing costs for builders."

They added that the uptick being seen in single-family building permits should improve single-family construction spending even more in the near future.

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November 16, 2019, 2:27 pm PDT

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