Strength in construction spending, especially on the residential end, continues.
By Manuel Gutierrez, Consulting Economist to NKBA
Construction continues to be one of the bright spots of the economic recovery, despite occasional blips and temporary setbacks.
Total spending in residential and non-residential private construction projects rose by 1.9% in August to an annual rate of $1.06 trillion. This was the third consecutive monthly gain since the market hit bottom in May, and was powered by a 3.7% jump in construction of residential spending, The nonresidential construction spending portion actually dropped by 0.3% during the same period.
The top right panel of the chart demonstrates that the decline in non-residential construction has been ongoing. In fact, it has been in a virtual freefall since the beginning of the year, except for a small gain in June. At the same time, residential construction projects (top left panel) have been steadily increasing. The rate of spending is currently just 0.6% below the $593 billion peak reached back in February.
The bottom left panel shows the strength of residential construction, with spending each month since July 2019 consistently higher than the same month a year earlier. The latest data point, for August of this year, reveals that spending was 6.7% higher than a year ago.
For the non-residential sector, the converse is true. Since March 2020, spending has consistently lagged the previous year, with spending for August 2020 4.3% below August 2019.
Even though the three components of residential construction have improved since the pandemic shutdown lows of April/May, their month-to-month performance has not been the same. Single-family housing has increased for the last two months, with spending in August jumping 5.5% over the prior month. This is the biggest monthly increase since mid-2009, when spending rose by 7.5% after the Great Recession was officially declared over.
Spending for construction of multifamily houses was flat in August, at a rate of $85 billion for the month, following three consecutive monthly gains.
The strength in residential construction spending, particularly in single-family housing and homeowner remodeling, has been a solid positive for the industry. Current trends suggest that this is likely to continue for at least the near future.
