Diving Into the Revisions: Construction Spending Revised Lower 7 Consecutive Months! 2015 GDP Will Decline vs. Estimates: By How Much?

By: Mike Shedlock | Tue, Jan 5, 2016
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Understanding the Construction Revisions

Yesterday I commented Government "Processing Error" Sinks Housing Reports for Entire Year.

In that article, I stated 2015 GDP would be revised lower. Some disagree.

For example, MarketWatch reports IHS Global Insight US economist Patrick Newport wrote in a research note "The upward revision to spending in 2014 is enough to raise growth that year from 2.4% to 2.6%-2.7%. The revisions are likely to boost growth for 2015 as well."

Let's investigate that claim with a look at the actual revised construction data as posted by the Census Bureau.

Note: Don't study this table too long. Instead, skip to the analysis and tables that follow.


Initially Reported vs. Revised - Seasonally Adjusted Data

Date Total Construction Total Residential Total Private Construction Private Residential
  Previously Published Revised January 4, 2016 Previously Published Revised January 4, 2016 Previously Published Revised January 4, 2016 Previously Published Revised January 4, 2016
Oct-15 1,107,381 1,127,040 405,604 433,313 802,435 829,729 399,036 426,784
Sep-15 1,096,637 1,123,892 401,658 432,381 795,841 824,201 395,021 425,703
Aug-15 1,089,801 1,121,907 395,401 427,507 788,698 820,804 388,636 420,742
Jul-15 1,080,358 1,114,716 388,681 423,039 781,249 815,607 382,063 416,421
Jun-15 1,074,314 1,113,424 382,553 421,663 773,489 812,599 376,055 415,165
May-15 1,068,424 1,107,569 379,735 418,881 776,452 815,598 373,063 412,208
Apr-15 1,044,641 1,084,961 373,346 413,666 757,209 797,529 366,837 407,157
Mar-15 1,006,351 1,052,899 363,879 410,428 729,713 776,261 357,512 404,061
Feb-15 993,465 1,037,527 366,651 410,713 720,819 764,880 360,575 404,636
Jan-15 990,051 1,033,261 364,833 408,043 716,185 759,396 358,940 402,151
Dec-14 989,118 1,031,635 360,323 402,840 707,551 750,069 354,834 397,351
Nov-14 976,888 1,016,054 352,509 391,674 699,344 738,510 347,159 386,325
Oct-14 979,573 1,015,977 347,242 383,645 692,127 728,530 342,114 378,517
Sep-14 959,182 992,349 342,529 375,695 684,862 718,028 337,109 370,275
Aug-14 955,017 986,876 335,035 366,894 676,325 708,184 330,001 361,860
Jul-14 952,468 984,990 334,543 367,065 673,787 706,309 329,531 362,054
Jun-14 950,282 983,906 334,459 368,083 674,049 707,673 329,510 363,134
May-14 957,641 990,737 338,268 371,364 681,986 715,082 333,522 366,618
Apr-14 964,738 992,914 345,879 374,054 691,365 719,540 341,109 369,284
Mar-14 964,995 989,496 347,470 371,970 696,050 720,551 342,607 367,107
Feb-14 968,303 985,280 351,366 368,343 704,219 721,196 346,436 363,413
Jan-14 961,002 973,655 354,047 366,700 696,718 709,370 349,142 361,795


Construction Spending Revised Lower 7 Consecutive Months!

For two years, construction spending went up vs. previous reported data. The net effect is GDP did indeed rise more than reported in 2014. The flip side is 2015 GDP will be lower than previous reported.

To understand why, we need to look at month over month differences as compared to previously reported numbers. Let's take a look.


Total Construction Spending vs. Previous Reports

Date Total Construction Spending
  Previous M/M Increase Revised M/M Increase Difference
Oct-15 0.98% 0.28% -0.70%
Sep-15 0.63% 0.18% -0.45%
Aug-15 0.87% 0.65% -0.23%
Jul-15 0.56% 0.12% -0.45%
Jun-15 0.55% 0.53% -0.02%
May-15 2.28% 2.08% -0.19%
Apr-15 3.80% 3.05% -0.76%
Mar-15 1.30% 1.48% 0.18%
Feb-15 0.34% 0.41% 0.07%
Jan-15 0.09% 0.16% 0.06%
Dec-14 1.25% 1.53% 0.28%
Nov-14 -0.27% 0.01% 0.28%
Oct-14 2.13% 2.38% 0.26%
Sep-14 0.44% 0.55% 0.12%
Aug-14 0.27% 0.19% -0.08%
Jul-14 0.23% 0.11% -0.12%
Jun-14 -0.77% -0.69% 0.08%
May-14 -0.74% -0.22% 0.52%
Apr-14 -0.03% 0.35% 0.37%
Mar-14 -0.34% 0.43% 0.77%
Feb-14 0.76% 1.19% 0.43%
Jan-14 0.11% 1.21% 1.10%


Total Residential Construction Spending vs. Previous Reports

Date Total Residential Construction Spending
  Previous M/M Increase Revised M/M Increase Difference
Oct-15 0.98% 0.22% -0.77%
Sep-15 1.58% 1.14% -0.44%
Aug-15 1.73% 1.06% -0.67%
Jul-15 1.60% 0.33% -1.28%
Jun-15 0.74% 0.66% -0.08%
May-15 1.71% 1.26% -0.45%
Apr-15 2.60% 0.79% -1.81%
Mar-15 -0.76% -0.07% 0.69%
Feb-15 0.50% 0.65% 0.16%
Jan-15 1.25% 1.29% 0.04%
Dec-14 2.22% 2.85% 0.63%
Nov-14 1.52% 2.09% 0.58%
Oct-14 1.38% 2.12% 0.74%
Sep-14 2.24% 2.40% 0.16%
Aug-14 0.15% -0.05% -0.19%
Jul-14 0.03% -0.28% -0.30%
Jun-14 -1.13% -0.88% 0.24%
May-14 -2.20% -0.72% 1.48%
Apr-14 -0.46% 0.56% 1.02%
Mar-14 -1.11% 0.98% 2.09%
Feb-14 -0.76% 0.45% 1.21%
Jan-14 -1.25% 1.69% 2.94%


4th Quarter GDPNow Forecast

4th Quarter GDPNow Forecast

The GDPNow forecast for 4th quarter is now down to 0.7% from 1.3% on December 23.


2015 GDP Will Decline vs. Previous Estimates: How Much?

The question is not whether 2015 GDP will rise vs. previous estimates, but rather by how much it will sink.

Let's start with the GDPNow forecast.

Of the decline since December 23, 0.5 percentage points came following the Census Bureau's release on construction spending and the ISM report, both on January 4.

I do not know how to separate ISM from construction, but the net result was as follows:

That's a total of decline for those three components of 0.37 percentage points.

Part of that decline was based not only on revisions, but also on a month-over month decline in November construction spending of 0.4 percentage points.

If 3/4 of the decline in those components is due to construction spending, then I estimate third quarter GDP will be revised about .57 percentage points lower, second quarter .56 percentage points lower, and first quarter .21 percentage points higher.

Those are very crude calculations that may be wildly off the mark.

If accurate, first quarter GDP would be 0.0%, second quarter GDP 3.3%, third quarter GDP would be 1.4%. And if the Atlanta Fed model holds with no changes from here, fourth quarter GDP would be 0.7%.

In that case, 2015 GDP would be about 1.35% with the Fed hiking and GDP decelerating rapidly.

 


 

Mike Shedlock

Author: Mike Shedlock

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Mike Shedlock

Michael "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Visit http://www.sitkapacific.com/ to learn more about wealth management for investors seeking strong performance with low volatility.

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