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Modest Drop in June Construction Spending
But Is It a Sign of Weakening Economy Ahead?


Total construction spending dropped 0.6 percent in June, versus May, but it marks the third straight month that overall expenditures have been in negative territory.

Construction spending dropped modestly in June compared to May, the third consecutive monthly decline and a possible sign of a weakening economy ahead. Somewhat unnerving is the fact that consensus estimates called for modest growth in each of those months, but spending declined instead.

Total spending, which includes both private and public sources, dripped 0.6 percent in June versus May, with residential expenditures dipping 0.1 percent and non-residential shedding 1.0 percent.

Spending on single-family homes fell 0.4 percent in June, compared to the previous month, while the multifamily sector decreased 1.5 percent.

Non-residential has also been sliding for the past year. In June, manufacturing was down 4.5 percent, compared to May, while commercial fell 2.2 percent, and health care was off 1.4 percent.

On a positive note, the year-over-year figures are much different. Total construction was up 0.3 percent; residential improved 2.4 percent; but non-residential shed 1.1 percent. Single-family home expenditures increased 4.8 percent, and the multifamily home segment jumped 16.4 percent.

Still, June is the third month in a row that total construction spending has dropped, and this suggests a downward momentum in expenditures, said Anika R. Khan, senior economist with the Wells Fargo Economics group.

The results have also been way out of line with analysts' consensus estimates in each of the past three months.

The 0.6 percent drop in June is a big miss relative to the consensus estimate of 0.5 percent growth, Khan said.

Construction outlays were expected to climb 0.6 percent in April and May as well. But the fallout was even greater in April, with expenditures dropping 2.9 percent. In May, spending fell just 0.1 percent.

"This divergence begs the question as to whether we are seeing weakness due to volatility or are at a turning point and forecasters are missing the signal," Khan said. "For private nonresidential, the three-month annualized rate is down, and suggests we are seeing a downshift. The trend in private single-family is also weak."

Another troubling sign is this: "Nonresidential spending, which totaled $682 billion on a seasonally adjusted, annualized rate, has fallen 1.1 percent on a year-over-year basis," said Anirban Basu, chief economist for the Associated Builders and Contractors.

"This marks the first time nonresidential spending has declined on an annual basis since July 2013," Basu said.

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November 16, 2019, 2:37 pm PDT

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