Construction spending in US drops for second straight month in May

Total nominal value of construction spending in the US dropped a seasonally adjusted 0.8 percent in to USD 1,143.3 billion in May from April’s downwardly-revised figure of USD 1,152.4 billion. The negative readings recorded in two consecutive months in April and May imply that the second quarter will be weak, noted Wells Fargo in a research report.

Furthermore, the drop in construction sector is seen across the spectrum with the maximum weakness witnessed in public spending. Highway and street, and education are the two major public components that dropped in the month. Federal highway and street fell markedly 14.2 percent in May however, on a year-on-year basis it was up 53.5 percent.

The scenario of residential construction spending has started to become slightly gloomy. Private outlays dropped in May by 0.3 percent. But private single-family outlays declined for the third consecutive month, whereas multifamily and home improvement gained in the month. The overall trend seems slightly better with private residential rising 4.7 percent year-on-year. However, the weakness in private single-family is slightly disturbing, particularly given the recent drops in single-family housing permits.

“Although it’s too early to tell if the recent US bond rally resulting from the Brexit vote will keep longterm US Treasury yields low, if sustained, we could see another refinancing wave, which will keep homeowners in place,” noted Wells Fargo.

Home improvement rose 2.3 percent year-on-year. Meanwhile, multifamily continues to be a positive spot that rose 23.9 percent year-on-year. Private non-residential construction spending declined 0.7 percent, with manufacturing, office, power, education, commercial and religious dropping in May. In the meantime, commercial construction, which includes office, retail, lodging and warehouse recovered strongly on the back of office and lodging. However, the overall pace is slowing.

Automotive construction spending, in line with decelerating pace of auto sales, dropped in May, falling 15.4 percent year-on-year. Multiretail, which includes malls and general merchandise were also subdued.  The US Retail Real Estate Supply Conditions report indicated that department stores contributed over 40 percent of all announcements.

Meanwhile, the forward-looking architecture billings index rose in May, the fourth continuous reading in growth territory, while, construction planning also bolstered in May.

“With billings and planning leading the construction spending by about twelve months, we suspect this cycle has a bit more room to grow,” added Wells Fargo.