Construction spending rose 0.8% in November after downward revisions to October. Solid gains in private sector construction activity offset lackluster performance in the public sector. That trend will likely continue despite talk of an infrastructure bill by the administration in 2018. The administration prefers to target public sector investment to projects that will bring in private sector investors; that means toll roads and bridges
Posts tagged Housing Market
Consumer spending rose 0.4% in November after adjusting for inflation. That follows a slight downward revision for October. The gains outpaced disposable incomes, which rose a tepid 0.1% after adjusting for inflation. Some of the increase in consumer spending relative to incomes can be attributed to the drawdown in wealth and the use of insurance (as opposed to income) to repair and replace property damaged by recent storms and fires. There is also a small wealth effect
Housing starts surged to a 1.29 million-unit pace in October after faltering in September. A jump in single-family construction in the South accounted for most of those gains. Homeowners who lost homes also scrambled to begin rebuilding. Speculative investors are helping spur activity; they snapped up much of the unsold inventories in the new home market in the South after the storms hit. The West was the only region to record an overall decline, likely due to the disruptions caused by the wildfires that ravaged parts of California.
Construction spending rose by 0.3% in September after a downward revision to August. Gains in the public sector helped to buoy those gains as crews scrambled to make repairs, most notably in the wake of Hurricane Irma. The increase in public sector spending was on the power grid, transportation and amusement and recreation, which all rose for the month. Contractors came from as far away as Canada to restore power in Florida following the outages created by Irma. Transfers from FEMA helped expedite repairs. The states hit hardest by Irma had the funds to match those dollars.
A surprise leap in the level of new home sales shocked market expectations, reaching a 660,000 unit annualized rate in September; that is up nearly 20% from the month of August. Gains were strongest in the South, where speculators snapped up properties following devastating hurricanes that destroyed thousands of homes. Many homes were not covered by flood insurance so they won’t be rebuilt. This further exacerbates tight supplies
Construction spending rose 0.5% in August after being revised even lower for the month of July. Gains at the state and local levels, however, more than offset another downdraft in federal spending. That was before any federal funds were allocated to aid with the cleanup and rebuilding needed following hurricanes Harvey and Irma. The imprint of Harvey, however, is in the data. There was a 25.4% monthly increase in spending on police and sheriff facilities, which no doubt included some temporary shelters and coordination facilities to help with rescue efforts surrounding Harvey.
Private sector construction rose 0.4% in August after plummeting in July. Gains were uneven. The housing market suffered some losses from flooding. The market for single-family homes posted anemic gains during the month, while apartments did a little better. The larger trend for the housing market will be contingent on two factors: 1) shortages of labor and materials prior to hurricanes, and 2) the extent to which migration increases from the U.S. Virgin Islands and Puerto Rico, much of which has become uninhabitable. Builders across the country have reported a worsening of labor shortages and rapidly escalating materials costs. The price of lumber rose on a 20% tariff for lumber from Canada before the disasters and has moved even higher afterward.
Look for rising construction costs to raise private sector construction measures. Shortages of labor and materials could siphon off resources from elsewhere and exacerbate the shortages in housing. This is a key issue for millennials, who are already struggling to buy homes as prices escalate.
The construction data, with the downward revisions to July, does not change our forecast for the second quarter, which is currently tracking slightly above 2%. We may see a temporary loss in construction activity for September as the third quarter closes. The damage created by Maria, which devastated Puerto Rico, will not show up in the national data unless it spurs a larger migration from the island to the mainland. Puerto Ricans are U.S. citizens but do not show up in the national statistics unless they migrate to the mainland.
Separately, the Institute for Supply Management (ISM) manufacturing index for September rose to 60.8, the strongest pace in more than a decade. Much of the increase was due to hurricane-related price increases, which underscores how tight inventories of construction materials were even before the storms. Concerns about hurricane related price increases were a recurring theme among the survey responses. Orders picked up along with a slight increase in employment. One sector that will benefit from hurricane damage is the auto sector. The vehicle sector was peaking, but replacement demand has surged in the wake of the storms.
New home sales in August fell to a 560,000-unit rate, well below expectations. Losses were concentrated in the South, which may point to developments in the Houston market that were halted in the wake of Hurricane Harvey.
Hurricane Effects to Show Up in September
Housing starts fell to a 1.18 million-unit annualized rate in August after being revised up slightly for the month of July. All of the weakness was due to a drop in the construction of multifamily structures, largely in the luxury apartment market. The Northeast region posted some of the largest declines. Effects related to Hurricane Harvey, which occurred late in the month, are not likely show up until September because the assumptions were made by statisticians before the end of August when the hurricane hit.
Existing home sales fell to a 44 million-unit rate in July after being revised lower for June. The drop follows a plummet in new home sales, which are mostly too expensive for entry-level buyers whose demand for housing is increasing. The pace for July existing home sales was the lowest since August 2016. Read More »
New home sales plummeted from a 630,000-unit pace in June to a 571,000-unit pace in July, a seven-month low. Losses were widespread across regions with the exception of the Midwest, where we saw a modest gain. The level of new, single-family home sales in the Midwest, however, has come off of the highs earlier in the year and remains close to the year-ago level. Total new home sales are off a little more than 9% on both a month-to-month and year-to-year basis. One silver lining to the gloomy report: upward revisions to May and June data.