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
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Payroll employment rose a more-than-expected 228,000 in November. The largest increases occurred in health care, professional services and manufacturing. Gains in health care and professional hires were concentrated in low-wage areas, which include support staff and non-doctor health care providers. That marks a shift from earlier in the year when much of the hiring in professional services was for new college graduates who are higher on the wage scale. The increase in administrative help reflects the expansion of offices; this is an area where employment agencies have reported shortages.
Our forecast for November payrolls is 180,000, which will reflect a rebound from storm-related losses in October. Retail is a sector to watch. The move from bricks to clicks is likely to limit the holiday hires we see compared to prior years. Warm weather across much of the country will also hit seasonal spending on everything from snow shovels to coats and boots.
An acute shortage of truck drivers is another factor for retailers.
Consumer spending rose a tepid 0.1% after adjusting for inflation in October. That follows a slight downward revision to September, which was extremely strong as consumers scrambled to replace and repair property in the wake of hurricanes. The composition of spending was still heavily weighted toward big-ticket items, such as vehicles, furniture and appliances as well as services. Spending on nondurable goods such as clothing fell sharply during the month. We expect the bifurcation of spending between big-ticket durable goods and services to continue into the holiday season.
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.
Personal disposable incomes flatlined in September on an inflation-adjusted basis after slipping 0.1% in August. A sharp increase in prices at the gas pump and losses in hourly earnings associated with the back-to-back hurricanes Harvey and Irma accounted for some of that weakness. The rise in prices at the pump may be a temporary phenomenon as refiners idled by Harvey came back on line. Global demand factors have kept energy prices much higher than expected as we enter the critical holiday shopping season, which starts with Halloween.
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
Payroll employment dropped by 33,000 in September, the first time in six years that employment slipped into the red. Disruptions created by Hurricanes Harvey and Irma were the primary reason for the weakness. Private sector job losses offset some public sector gains, which is not surprising given the number of federal, state and local officials who worked around the clock once the storms hit.
The largest job losses occurred in the service sector where power outages and ongoing flood clean-up disrupted business. The leisure and hospitality sector alone lost more than 100,000 jobs, almost entirely at food services and drinking places. Jobs at nursing homes were affected, which is not be a surprise given the number of patients moved as Hurricane Irma approached Florida.
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.