Local and state government construction spending to boost US Q1 GDP growth

US total construction spending expanded in January by 1.5% m/m, much above consensus expectations of a moderate increase of 0.3% m/m. According to the details of the report, local and state government spending are expected to stimulate Q1 GDP growth, while private sector investment is currently in a better position to weather more reductions in the oil and gas sector.

Private sector construction in the US expanded 0.5% m/m in January, while residential construction remained the same and non-residential activity grew strongly by 1% m/m. In the residential sector, single-family construction fell 0.2% m/m, while the multifamily sector construction grew 2.6% m/m, the third consecutive growth. The private nonresidential construction grew 1% m/m, partially reversing the decline in activity in late 2015. Manufacturing, lodging and office construction mainly helped the total construction spending to rebound in the month.

The nonresidential structures investment is on a better footing in the beginning of 2016. Investment in oil and gas extraction is expected to contract sharply again in Q1, resulting in the overall structures investment to shrink. However, better non-energy spending should help energy sector activity to pullback more than expected earlier.

On the public sector side, total construction spending expanded 4.5% m/m in the month. The underlying boost was provided by a strong growth in local and state government spending on street and highway construction.

"We currently expect that a more favorable fiscal stance at the state and local government level will boost Q1 GDP growth by 0.3-0.4pp. Better-than-expected January data on multifamily residential construction, private nonresidential activity, and state and local government spending together boosted our Q1 GDP tracking estimate by three-tenths, to 2.4%", says Barclays.