Weak US construction spending lowers Q4 GDP tracking to 1.3%

Construction spending came in decidedly weaker than expected in November, declining to 0.4% m/m against forecast (0.8%) and consensus (0.6%) expectations. The weaker-than-expected figures was driven by declines in multifamily construction and private nonresidential construction, as well as a slide in public sector activity.

Single family construction grew 0.6% m/m (previous 1.2%), whereas multifamily family construction declined 0.7% m/m and was revised lower in October (0.3% m/m, initial: 1.4%). The multifamily series is noisy month-to-month, and recent trends suggest activity in the sector remains solid. Private nonresidential construction declined 0.7% m/m (previous: +1.1%), held down by a 4.0% drop in manufacturing construction. Construction activities for chemical manufacturing fell 8.3% m/m, likely a result of project completions.

Capital investment in this sector has benefited from the build-out of refining, storage and export facilities for petroleum products, and despite the November decline, spending remains up 40% y/y. Finally, public sector construction declined 1.0% m/m (previous: -0.8%) as federal spending reversed its October surge and state and local government activity slowed for the third consecutive month. On balance, this morning's report suggests more modest rates of investment in the fourth quarter.

"Weaker-than-expected multifamily construction, along with downward revisions, trimmed our estimate of Q4 residential investment. Less nonresidential construction suggests a larger decline in total structures investment than we have previously expected. On the public sector side, weakness in state and local government construction trimmed our estimate of total government investment. On net, our Q4 GDP tracking estimate fell three-tenths to 1.3%", says Barclays.