Construction spending rose 0.3% in March and was revised up for the month of February. Gains in the private sector more than offset losses in the public sector. The drop in spending by the federal government was particularly large and underscores the lack of foresight that goes into the budget; infrastructure investments pay off with greater productivity growth down the road, while damages to our public infrastructure are costing us dearly on that front.
Private sector gains were fairly broad-based. The real story, however, is in year-over-year measurements, which reveal shifts in both consumer spending and employment. Construction in the lodging and amusement and recreation sectors is up close to 30% from a year ago. Those gains are being driven by a pickup in construction at amusement parks, which is more than 80% higher than a year ago, and sports facilities, more than 60% higher from a year ago. That reflects the increase in discretionary travel that we have seen since prices at the gas pump fell in 2014. Construction of offices is up nearly 25%; the exception is offices for financial services, which are down. Employment in the commercial banking industry is down fairly sharply since the onset of the crisis and not expected to rebound with commercial banking going through a structural shift; add to that, online banking and it’s hard to generate jobs.
Residential construction is also on a upswing. Gains are still being driven, however, by the apartment market. Land costs for builders in the single-family home market are now a major constraint on supply and construction in the pipeline. Dormitories are also being built to accommodate the flood of millennials now entering college.
The weak spot is construction in the manufacturing sector, which has been hit by the the bust in the shale industry and the strong dollar. The one exception is the auto sector, which remains a bright spot.
Separately, the Institute for Supply Management (ISM) manufacturing survey came in at 50.8% for April, the second reading above 50 in as many months. New orders and production remained buoyant, while inventories and employment continued to contract. Coupled with a rash of regional manufacturing surveys released last week, this one suggests that the manufacturing sector is close to a bottom. That is about as optimistic as it gets for manufacturing these days.
Bottom Line: The construction data reveal some glimmers of hope for the private sector, but show little sign of help for our crumbling infrastructure. That should help a bit on the upside for what was a miserable first quarter GDP report.