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By Anirban Basu
November 13, 2017
Spending Growth in September Partially Offsets Prior Periods of Weakness
Census Bureau data indicates that nonresidential construction spending increased to $698.1 billion in September, representing a 0.5% increase over the previous month. However, nonresidential construction spending is down 2.9% on an annual basis, and spending has not been this low since 2015.
Nonresidential construction spending is down 2.9% on an annual basis, and spending has not been this low since 2015.
A number of key construction categories have registered declines in spending over the last twelve months for which data are available, including manufacturing (-20.3%), religious structures (-12.4%), sewage and waste disposal (-10.7%), water supply (-9.2%), power (-8.9%), and conservation and development (-7.7%). The Census Bureau revised figures for previous months upward by a combined $11 billion, however.
The year-over-year decline in nonresidential construction spending appears counterintuitive. There is, after all, an abundance of positives characterizing current economic activity. That country has added 1.8 million net new positions over the past year, with the official unemployment rate dropping to a 16-year low. Asset prices, including equity prices, have surged, boosting household wealth in the process. The global economy has strengthened and it is expected to grow even faster in 2018; export activity has begun to solidify. Business spending remains stable.
Moreover, collectively, construction firms continue to increase staffing levels. One would think this would be consistent with construction spending growth. One possibility is that construction firms are being induced to replace each retiring, often highly skilled worker with more than one staff member. This is consistent with higher employment, diminished industry productivity (measured in terms of output per hour worked), stagnant industry output, and potentially shrinking profit margins. That said, nonresidential construction spending should begin to expand faster in coming months, with manufacturing and power representing likely sources of improvement.
Nonresidential Spending Growth, Millions of Dollars, Seasonally Adjusted Annual Rate
Source: U.S. Census Bureau
Low Inflation + Low Interest Rates + Steady Economic Growth = Surging Asset Prices
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