Private Residential Construction Slips back in May

Private residential construction spending slid back in May, with the volatile home improvement sector again the driver of change. The Bureau of Census Construction Spending report revealed a 2.1% decrease in private residential construction spending in May, falling to a seasonally adjusted annual rate of $228.9 billion. Year-over-year, residential construction spending is down 6.6% from $245.2 billion in May 2010.

Spending on home improvements has been highly volatile since the end of the recession in mid-2009 and the May numbers continued this pattern with a decline of 3.8% to $110.5 billion. This follows a sharp, 6.5% increase in April and a 4.3% decline in March. The high volatility has made home improvement spending very difficult to read in recent months.  This has been further complicated by some large revisions to numbers reported in previous months. However, when viewed as a three month rolling average, home improvement spending follows a moderate steady downward trend over the past six months, which is consistent with the trend in the single-family and multifamily construction spending.

Single-family and multifamily construction spending continued their downward trend, with single-family down 0.3% to $105.2 billion and multifamily construction spending down 2.1% to $13.3 billion. Year-over-year, single-family and multifamily construction spending are down 11.9% and 6.8% respectively. There was a sizable revision to multifamily spending in April, revised up to $13.5 billion from the $12.8 billion reported the previous month. This overshadowed the reported month-over-month decline.

The continued weakness in single-family and multifamily construction spending reflects the depressed state of the housing sector. Housing starts have struggled to gain any forward momentum over the past 12 months and remain at very low levels.  Similarly, multifamily housing starts have fluctuated widely, but have made only moderate improvement since May 2010.

Total private construction spending was down 0.4% to $477.2 billion, from a downwardly revised $479.3 billion in April (previously reported as $283.0 billion). The 2.1% decline in private residential construction spending was partly offset by a 1.2% increase in private non-residential construction spending to $248.3 billion. The improvement in non-residential construction expenditure was led by in a rise in spending on transport (+4.5%), power (+4.4%) and manufacturing (+1.8%) construction, but weakened by declines in expenditure on educational (-4.3%), religious (-3.7%) and communication (-2.9%) construction. 

Government construction expenditures continued to decline, down a further 0.8% in May, with a decrease in spending on educational (-2.3%), transportation (-1.9%), highway and street (-1.8%) and healthcare (-1.5%), but there were notable increases in commercial (+4.7%), sewage and waste (+4.2), conservation and development (+3.2%), and public safety (+2.3%) construction expenditures.

Overall, total construction spending was down 0.6% to $753.5 billion in March.



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