The most recent release of Census’ Construction Spending report included significant revisions to the residential improvements spending category. Residential improvements spending is calculated as the amount of total private residential spending on owner-occupied units after accounting for single-family and multifamily expenditures. As discussed in an earlier post, with these changes, the total amount of spending on residential improvements more closely tracks NAHB’s remodelers’ sentiment.
According to Census, in the January 2016 release of the Construction Spending report, which provides construction spending data up to November 2015, monthly and annual estimates for private residential, total private, total residential and total construction spending for January 2005 through October 2015 were revised to correct a processing error in the tabulation of data on private residential improvement spending.
As illustrated in Figure 1, which shows residential improvements spending measured at a seasonally adjusted annual rate for each quarter, the revised series diverged noticeably from the first quarter of 2012 onward. Between 2012 and the third quarter of 2013, the revised series shows a muted increase while the previous series rose more significantly. In addition, the previous residential improvements series exhibited a steep decline over 2014 with a partial recovery in 2015. In contrast, the 2014 decline in the revised series is shallower, of a shorter duration, and is erased by the first quarter of 2015.
Figure 1 indicates that the revisions to residential improvements spending were sizable, especially in 2014 and the first three quarters of 2015. Between 2012 and the third quarter of 2013, the December 2015 release of residential improvements spending was revised down by an average of $12 billion in each quarter by the January 2016 release. On average, each quarter of spending over this period was revised down by 9%. The largest revision in this period took place in the first quarter of 2013 when the $131.3 billion in residential improvements spending was revised down by 12% to $115.6 billion.
Over 2014 and ending in the third quarter of 2015, the December 2015 release of residential improvements spending was revised up by an average of $34.0 billion in each quarter. On average, each quarter of residential improvements spending over this period was revised up by 33%. The largest revision during this period took place in the first quarter of 2015 when the $99.5 billion in residential improvements spending was revised up by 45% to $144.1 billion. In the most recent quarter, the third quarter of 2015, the $114.6 billion in residential improvements spending was revised up by 28% to $147.1 billion.
The revisions to the residential improvements series more closely aligns residential improvements spending with NAHB’s Remodeling Market Index (RMI). The RMI is based on a quarterly survey of NAHB remodeler members and provides insight on current market conditions as well as future indicators for the remodeling market. The revised series keeps the alignment between 2009 and 2011 largely in place and the two series remain in agreement from there. Between 2012 and the middle of 2013, the gap between the two series, the RMI and the revised residential improvements spending series widens somewhat. However, this gap quickly converges by the end of 2013 with an increase in residential improvements spending. Despite the decline and recovery between the first quarter of 2014 and the first quarter of 2015, residential improvements spending continues to track the RMI.