Construction spending rose 0.3%, less than the Bloomberg Econoday consensus estimate of 0.5%.
However, Last month was revised up from -0.5% to +1.0%.
Ready to cheer? Not so fast. January was revised from +2.1% to -0.3%.
Highlights
Home sales may be puttering along but construction spending nevertheless remains one of the strongest reports on the calendar. Construction spending did inch 0.3 percent higher in March, which is lower than expected, but February is now revised sharply higher, from a 0.5 percent decline to a 1.0 percent gain. Gains for March and February are positives for near-term momentum though they are offset by a sharp downward revision in January to minus 0.3 percent from plus 2.1 percent.
Back to March, residential spending rose 1.6 percent driven by gains for multi-family homes with single-family homes flat. The latter is a disappointment but does follow a trend of steady strength in prior reports.
Non-residential spending rose 0.7 percent in March led by transportation and including a respectable gain for manufacturing, one that may hint at better results for capital spending. Public spending on educational building and on highways is also up though Federal spending remains weak and state & local spending, which has been strong, fell in the month.
Year-on-year, total construction spending is up 8.0 percent, which includes a 7.8 percent gain on the residential side and a 9.3 percent gain on the non-residential side. These are down from 10 percent rates in prior reports but are still very hard to match anywhere else in the economy.
Recent History
Construction spending is expected to rise 0.5 percent in March to offset a 0.5 percent decline in February, one that masked a strong 0.9 percent gain for residential spending. Non-residential spending was the weak spot in February, falling 1.3 percent. Still, both components are posting 10 percent year-on-year growth which is far above other readings on the economy.
Construction Revisions Net Negative
- February 1.5 percentage points up
- January 2.4 percentage points down
Revision Fiasco
January 5, 2016: Diving Into the Revisions: Construction Spending Revised Lower 7 Consecutive Months! 2015 GDP Will Decline vs. Estimates: By How Much?
January 29, 2016: When are Construction Revisions Coming?
March 25, 2016: 4th Quarter “Final” GDP Estimate 1.4% – Expect Revisions
Synopsis
A BEA processing error affected construction spending going back 10 years. The biggest revisions will affect GDP in 2014 to the plus side and I believe 2015 to the downside.
We will find out about those 10-year revisions in July. Meanwhile, existing reports are heavily revised month after month.
Seasonal Adjustments
Pease note that the Commerce department changed its seasonal adjustment factors last year in an effort to smooth out first and fourth quarter volatility.
Despite that move, fourth quarter GDP was a weak 1.4% and the advance estimate for first quarter was an anemic 0.5%.
The net construction spending revisions for January and February will negatively impact first quarter GDP.
Meanwhile all the models look forward to second quarter.
For details on the new seasonal adjustments and why no one should expect a huge second quarter jump, please see First Quarter GDP Likely Overstated (And Don’t Expect a Huge 2nd Quarter Bounce).
GDP and construction reports are a complete joke.
Mike “Mish” Shedlock
