Michael Gapen

Construction spending in July fell 1.0%, below our (-0.2%) and consensus expectations (-0.5%). The weakness in the headline was driven by a large decline in residential construction (-2.5%) and a small decline in the nonresidential (-0.3%) component.

The July report also contained a downward net revision of 2.7% for the previous two months of data. Construction spending has now declined for three consecutive months, which coincides with the sharp drop-off in housing activity following the expiration of the homebuyer tax credit in April.

Residential and nonresidential construction spending have declined 10.2% and 5.6%, respectively, on a 3m/3m annualized basis. The private component of the series showed a similar pattern, with private construction spending down 0.8% in July and 12.3% on a 3m/3m annualized basis.

Public construction spending, however, was down 1.2% in July, but was up 2.8% on a 3m/3m annualized basis, suggesting that the weakness in construction spending continues to be driven by depressed residential housing activity.

The giveback in housing activity has moderated the y/y improvement in the series observed in recent months. The y/y change in residential construction spending in July was 6.0%, while the y/y change for nonresidential construction was -16.6%. Relative to our Q3 GDP projections, the July numbers are broadly consistent with our forecast for structures investment and softer than our expectation for residential investment.


source: BarCap