Not all forms of construction are created equal
The Commerce Department tells us today that
builders have been paring spending each month after the value of all construction projects surged to an all-time high of $1.13 trillion, on an annualized basis, in February.This overall figure masks important differences within the construction industry. On the one hand, public nonresidential construction (22% of total) continues a healthy growth pace -- up an annualized 11.7% rate (SA) since February -- while private nonresidential construction (22% of total) is at least relatively steady. On the other hand, private residential construction (55% of total) is clearly on the skids -- on a SA annualized
Spending on all construction projects dipped by 0.3 percent in June from the previous month.
Yes, manufacturing activity in the US is up of late. Yet this economy is so profoundly dependent on construction that the demise of the housing sector will prove the recent upswing in production to in fact be overproduction. Where is the income to buy all this new production? The jobs to generate the income? The export markets?
Recall that the US personal savings rate in Q2 was a stunning 0.2%. While in Australia, the household savings rate has been negative since mid-2002, this is to some extent a statistical artifact thanks to the Australian Bureau of Statistics practice of making deductions for housing stock depreciation. The US won't have this artificial "luxury" of year-upon-year negative savings.
UPDATE: Vincet is keeping me on my toes.
I heard that residential construction is down due to issues with the volatile home improvement component. I'm told new home constuction is up 0.2%. Also as you know housing starts is not showing any signs of slowdown.Over the course of four months in which this figure had consistently fallen, it seems hard to believe it is due simply statistical noise. I realize that the chief economist of RBS Greenwich Capital claims the big jump in home improvements in February is causing mischief in the numbers, but the annualized figure is down an even steeper -22.9% since March and since December, -6.6% annualized.
Y-o-y, private residential construction is up 9.1%, but in March it was +13.1% and in April, +16.7%. The slowdown appears real, and actual decline could occur as early as the end of 2005.