US construction spending

This page is about Census estimates of overall US spending on construction, as one major, and volatile, component of the economy.

1 May 2013.

Total spending shows an apparent 4% drop from Dec 2012 to Mar 2013. The series is quite noisy and gets heavily revised so, although this is somewhat worrisome, it is not time to declare a new trend quite yet.

1 May 2013. Data through Mar 2013.

What is being measured (4 Sep 2008)

• “Construction” includes new construction and additions/alterations of essentially everything that is built in place, except mines.
• “Value of construction put in place” is the technical name of the measure; it includes cost of materials and labor, contractor’s profit, overhead, interest and taxes.
• Methodology (18 Aug 2008) Relatively little primary data is available. The methodology is a combination of inference from related data series, models of typical constructions projects, and surveys. For example, the spending on a residential project is assumed to be a fixed fraction of the sales price, and that spending is assumed to happen at a uniform rate from groundbreaking to completion. Because of such approximations, small variations are meaningless, and only the large trend should be noted.

Private residential leads non-residential (18 Aug 2008) See 31 Jul 2008 clipping for the YOY change in private residential and non-residential, with the former brought forward five quarters. The correlation is visually impressive.


Effect on GDP (6 Jan 2009) The biggest variation in construction spending is from residential; this can be a few percent of GDP.

The US Census Bureau in the Department of Commerce makes a monthly report titled “C30”.

• Definitions are at http://www.census.gov/const/C30/definitions.pdf.
• Methodology is at http://www.census.gov/const/C30/methodology.pdf.
• Primary data can all be found by following obvious links on the main page http://www.census.gov/const/www/c30index.html.

• The Architectural Billings Index, which leads non-residential construction by 9-12 months.
• Other series which measure something very closely related to private residential construction spending are
  • The NAHB-Wells Fargo Housing Market Index (HMI), a sentiment index
  • Census new home sales
  • Census permits and starts

Selected commentary

• 25 Aug 2010. Don't be distracted by redundant information There is some difference in goals between news sources, which are always desperate for good headlines, and investors, who need substantial new information. This becomes an issue when several different data series provide highly redundant information. The new home market provides a useful example.
• 2 Jan 2013. Uptrend in US construction spending driven by residential
• 2 Apr 2013. US construction is probably still in a growth trend
• 1 May 2013. A possible danger sign in US construction spending

Undated. Census website.

http://www.census.gov/const/C30/definitions.pdf

“DEFINITIONS OF CONSTRUCTION”

“Construction includes … New buildings and structures … Additions, alterations … Mechanical and electrical installations … Site preparation and outside construction of … facilities that are built into or fixed to the land … Installation of the following types of equipment: boilers, overhead hoists and cranes, and blast furnaces … Fixed, largely site-fabricated equipment not housed in a building … The following are excluded from construction: … Maintenance and repairs to existing structures or service facilities … Cost and installation of production machinery and equipment items not specifically covered above … Drilling of gas and oil wells, including construction of offshore drilling platforms; digging and shoring of mines … work that is an integral part of farming operations such as plowing and planting of crops … Land acquisition …

The “value of construction put in place” is a measure of the value of construction installed or erected at the site during a given period. For an individual project, this includes … Cost of materials … Cost of labor … Contractor’s profit … Cost of architectural and engineering work … Miscellaneous overhead and office costs chargeable to the project on the owner’s books … Interest and taxes paid during construction”

Undated. Background document on the Census website.

http://www.census.gov/const/C30/methodology.pdf

The methodology is a combination of inference from related data series and surveys.

For example, estimation of single family residential value-put-in-place begins with housing starts (for timing) and sales (for scale). The cost of construction is taken to be .8424 times the sales price. Then a prototypical building schedule, seasonally adjusted, is assumed, so that if the first month of construction is in January, it is assumed that 15.8% of the home is put in place in that month.

Some data is gathered directly by survey, for example on home improvement projects.

31 Jul 2008. Calculated Risk.

http://calculatedrisk.blogspot.com/2008/07/gdp-and-investment.html

“GDP and investment”

“This first graph shows the typical relationship between residential investment and non-residential investment in structures. Note that residential investment is shifted 5 quarters into the future on the graph (non-residential investment usually follows residential by about 4 to 7 quarters).”

Dec 2008. Monthly Economic Letter

http://dallasfed.org/research/eclett/2008/el0812.html

“Financial Crisis Casts Shadow Over Commercial Real Estate. by Roland Meeks”

“Construction spending is a volatile component of GDP. Over the past 50 years, commercial real estate (CRE) investment growth’s standard deviation from the mean—a common measure of volatility—was 10.7 percent. This is less than residential’s 14.4 percent but nearly five times higher than the volatility of GDP growth.”