All the data confirms: no relief for house-hunters
The numbers: Construction spending was at a seasonally adjusted annual $1.309 billion in October, 0.1% lower than a revised September spending pace of $1.311 billion, the Commerce Department said Monday.
Economists surveyed by MarketWatch had forecast a 0.3% monthly increase.
What happened: Any strength in October came from the government. Public outlays on construction projects were 0.8% higher than in September, while private sector spending was 0.4% lower. Both sectors were higher compared to a year ago, public spending by 8.5% and private by 3.9%. In October, public works projects favored schools, spending on which was 2.6% higher than in September, over highway construction, which declined 0.1%.
Big picture: Overall spending was 4.9% higher than in October 2017, and for the year to date, it’s 5.1% higher than the same period last year. But there are some key areas where construction outlays are lagging, notably residential building. Residential spending was down 0.5% for the month, and the average pace of spending over the third quarter is now lower than in the first three months of the year.
What they’re saying: “Discouraging,” said BMO senior economist Jennifer Lee after the data release, noting the private sector sluggishness. “There were some sizeable downward revisions to the prior two months….September’s flat reading is now -0.1%, August’s 0.8% jump is now -0.4%.”
Construction economics analyst Ed Zarenski published a forecast on construction outlays from a variety of sources in November. Zarenski expects overall spending will increase 6.5% in 2018 and 4.8% in 2019. But he noted on Twitter that construction inflation has hovered just above 4% for the last few years, which means that inflation-adjusted, or real, volume growth will be closer to 1%.
Market reaction: Industrial stocks have suffered this year on concerns about a global trade war. Share of Caterpillar Inc. CAT, +2.42% are down 14% in the year to date, slightly better than the 15% decline for Cummins Inc. CMI, +0.93% shares.
