January 3, 2006

Martin Crutsinger of AP Botches Reporting on the November Construction Spending Report

The Associated Press’s Martin Crutsinger used today’s release by the Commerce Department’s Census Bureau of November’s Construction Spending Report as an opportunity to take an unsupported swipe at the housing market, and to give government spending full credit for the favorable news.

Here are the topline seasonally adjusted numbers (4-page PDF) released today (in billions; listed in order of November, October and the net change; figures may not add up due to rounding):

Total Construction — $1,146.4, $1,144.2, +$2.2

By Sector:
Residential $648.4, $648.9, -$0.5
Nonresidential $498.0, $495.3, +$2.7

Public and Private:
Public $253.9, $253.2, +$0.7
Private $892.4, $891.0, +$1.4

Public Sector Breakdown:
Residential $6.4, $6.8, -$0.4
Nonresidential $247.5, $246.4, +$1.1

Private Sector Breakdown:
Residential $641.9, $642.1, -$0.2
Nonresidential $250.5, $249.0, +$1.5

With this “big picture,” here’s how Crutsinger led off his article:

Construction spending hit an all-time high in November as government spending to build schools, highways and sewer systems offset a slight dip in home building.

Huh? The three individual components of the Public Sector Crutsinger chose to flag went up by $3.5 billion (you’ll have to see the detailed report to verify the numbers), while you can see that total Residential Construction fell by only $0.5 billion. That’s quite a bit more than an “offset,” and the difference between the two ($3.0 billion) is well in excess of the total monthly increase in all construction of $2.2 billion.

This is analysis?

Further, since when did “Residential Construction” translate to “home building”? The home ownership rate in the US is 69%, so there’s plenty of apartment and other types of construction in the “residential” number besides owner-occupied homes. Perhaps Mr. Crutsinger is itching to tell his audience that housing construction is in decline, but the report neither proves or disproves that point. In fact, since over 75% of the housing decline occurred in the Public Sector (again, you’ll need to go to the detail to verify), which tends to build and remodel public (non-owned) housing, it’s fair to say that there is no evidence of ANY dip in “home building” in the Construction Spending Report.

But let’s get back to the big picture. If you’re going to look for contributors to the increase, you would look in the sector where most of the spending (about 78%) occurs: the private sector. The nonresidential portion of the Private Sector accounted for roughly two-thirds of the month’s total increase ($1.4 billion out of the $2.2 billion increase). So it appears that in addition to not understanding that all residential construction is for housing, Mr. Crutsinger gives the Public Sector exclusive credit for the surge. Public Sector nonresidential spending did increase significantly ($1.1 billion above), so it would be reasonable to give it near-equal billing with the Private Sector.

So stick with the big picture, Martin. Use this as your model for your next opener:

Construction spending hit an all-time high in November as increases in private and public nonresidential spending offset a slight dip in residential construction.

There. That wasn’t so difficult, was it? Perhaps it’s not as exciting, but it does have the advantage of being the truth.

The really big news in the report is that the Office, Commercial, and Healthcare areas in the Private Sector, and the Public Sector areas Crutsinger cited (plus the Healthcare and Water Supply areas), have been on double-digit or near double-digit tears during the past 12 months (again that info is in the detail).

Private Sector firms were very reluctant for many years to build new buildings or extensively remodel olds ones because occupancy rates had been soft. The fact that spending in the Private Sector areas just noted is surging appears to reflect an underlying optimism about the economy on the part of business leaders (who, after all, are the people ordering up the construction projects) that hasn’t been present for some time.

Cross-posted at Newsbusters.org.


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