Solid Third Quarter Start for Building Outlays
Starting the third quarter off on a solid note, construction spending rose 1.8 percent in July to a $981.3 billion annual pace. On net, revisions to the previous two months were positive. Private residential construction spending rose 0.7 percent, with gains in single-family, multifamily and home improvement. Although housing market indicators were mixed in July, single-family spending still eked out a modest 0.5 percent increase following two monthly declines in May and June. Multifamily construction spending rose 0.2 percent in July and is up a whopping 41.0 percent over the past year. Apartment demand remains strong and should continue to buoy construction spending in the coming years. Home improvement also rose on the month, increasing 1.2 percent.Private nonresidential construction spending rose 1.4 percent in July, and is now up 14.1 percent from a year earlier. Power and manufacturing made the largest contribution to the headline, with lodging, healthcare and education building also posting gains on the month. Chemical manufacturing plants, the largest component of manufacturing spending, surged 11.8 percent in July. According to McGraw Hill, the improvement in manufacturing plant construction is being led by chemical and energy plant projects. Manufacturing plant projects started in July include a petrochemical plant in Baytown, Texas and an ethylene plant in Freeport, Texas. Other sizeable manufacturing projects coming online in July were a semiconductor facility in Hillsboro, Oregon and a processing plant in Corpus Christi, Texas. Today’s impressive increase in the ISM manufacturing index for August suggests we could see continued improvement in this component in the coming months.
Public construction spending rose 3 percent in July due to strengthening state and local outlays. State and local spending directly feed in to the BEA’s calculation for real GDP and recent figures suggest we could see an improvement in the third quarter. The biggest unanswered question, however, is the anticipated shortfall in the Highway Trust Fund. A short-term bill was passed that would fund programs over the next 10 months, but the lack of a multi-year bill could cause some states to rush projects to the finish line before the insolvency debate rears its head once again.
Looking Ahead: Nonresidential Spending is Firming
Overall construction spending has improved at a sluggish pace during this recovery but should gain traction along with better economic growth. Leading nonresidential indicators including starts, architectural billings and the Dodge Momentum Index suggest conditions are improving. We expect nonresidential construction spending to rise 6 percent in 2014, and increase by a more modest 3.3 percent in 2015.
Recommended Content
Editors’ Picks
EUR/USD clings to gains above 1.0750 after US data
EUR/USD manages to hold in positive territory above 1.0750 despite retreating from the fresh multi-week high it set above 1.0800 earlier in the day. The US Dollar struggles to find demand following the weaker-than-expected NFP data.
GBP/USD declines below 1.2550 following NFP-inspired upsurge
GBP/USD struggles to preserve its bullish momentum and trades below 1.2550 in the American session. Earlier in the day, the disappointing April jobs report from the US triggered a USD selloff and allowed the pair to reach multi-week highs above 1.2600.
Gold struggles to hold above $2,300 despite falling US yields
Gold stays on the back foot below $2,300 in the American session on Friday. The benchmark 10-year US Treasury bond yield stays in negative territory below 4.6% after weak US data but the improving risk mood doesn't allow XAU/USD to gain traction.
Bitcoin Weekly Forecast: Should you buy BTC here? Premium
Bitcoin (BTC) price shows signs of a potential reversal but lacks confirmation, which has divided the investor community into two – those who are buying the dips and those who are expecting a further correction.
Week ahead – BoE and RBA decisions headline a calm week
Bank of England meets on Thursday, unlikely to signal rate cuts. Reserve Bank of Australia could maintain a higher-for-longer stance. Elsewhere, Bank of Japan releases summary of opinions.