October 3, 2016

August Construction Spending: In the Tank

In a report which would appear to bellwether for yet another mediocre quarter of economic growth, the Census Bureau’s Construction Spending report for August was awful:

The U.S. Census Bureau of the Department of Commerce announced today that construction spending during August 2016 was estimated at a seasonally adjusted annual rate of $1,142.2 billion, 0.7 percent (±1.5%)* below the revised July estimate of $1,150.6 billion. The August figure is 0.3 percent (±1.8%)* below the August 2015 estimate of $1,145.2 billion.

During the first 8 months of this year, construction spending amounted to $755.0 billion, 4.9 percent (±1.2%) above the $720.0 billion for the same period in 2015.

Year-over-year construction spending has now joined the plethora of manufacturing and wholesale reports showing year-over-year monthly declines. According to Zero Hedge, that’s the first year-over-year seasonally adjusted drop in five years.

Other facts:

  • August’s $1.1422 trillion in seasonally adjusted construction spending was the lowest since December, and is 2.9 percent below March’s seasonally adjusted peak of $1.1764 trillion.
  • A look at the raw (i.e., not seasonally adjusted) data indicates that construction spending during the peak season of July and August was up by only 0.3 percent from July and August 2015.
  • July (from $1.1532T to $1.1506T) was revised down in today’s release by $2.6 billion.

Virtually all of the year-to-date gain the Census Bureau cited occurred during this year’s first six months, when the economy’s GDP growth averaged 1.1 percent. The seasonally adjusted average for construction spending for the two months reported thus far in the third quarter of $1.1464T is a tiny amount above the second quarter’s average, and 1.1 percent below the first quarter’s average.

So where is the GDP growth supposed to come from?

In reaction to today’s news, the Atlanta Federal Reserve has just revised its GDP growth prediction for the third quarter down yet again to an annualized 2.2 percent. Its prediction was as high as 3.6 percent in early August. No one should be surprised if the Atlanta Fed reduces that figure further by the time the government releases its official GDP report in late October.


UPDATE: Today’s news makes a mockery of the claim by the Associated Press’s Martin Crutsinger on Thursday of “new-found strength in business construction” from an “increase in spending on structures” in the final weeks of the second quarter. As seen in this post from last week, it was already an unsupportable claim even before today’s news, but July’s and August’s results demonstrate that any signs of renewed vigor seen in June — a quarter where spending in that category still decreased by an annualized 2.1 percent) have disappeared in the past two months.


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