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The Problem With Modern Monetary Theory

The Problem With Modern Monetary Theory

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Construction Spending: Eight Miles High and Falling Fast

Construction spending month-over-month declined 0.6% vs an expected gain of 0.6% in a Bloomberg Consensus Range of 0.2% to 2.2%. Spending is on the verge of negativity year-over-year.

Revisions are all over the place. May was revised up by 0.7 percentage points but April lower by 0.9 percentage points.


Highlights

Construction spending has to show the strength based on other data including housing starts and permits. Spending fell 0.6 percent in June vs expectations for a 0.6 percent gain. Revisions are mixed with May revised upward from a 0.8 percent drop to a decline of only 0.1 percent but April revised from minus 2.0 percent to a drop of 2.9 percent.

Spending on single-family construction fell 0.4 percent in June to extend a surprisingly negative streak that goes back to March. Year-on-year, construction spending on single-family homes is up only 4.8 percent vs a 16.4 gain for multi-family units where monthly data for June, however, also show contraction, at minus 1.5 percent. A plus for housing data in this report is strength in home improvements as residential spending excluding new homes rose 1.2 percent in the month.

Non-housing is also soft in the report, down 1.3 percent for private non-residential spending which is up only 2.5 percent year-on-year. Manufacturing is showing the most weakness, down 4.5 percent in the month with the on-year rate down 10.4 percent to underscore stubborn weakness in business investment. Public spending is also soft with education down 0.5 percent and highways & streets down 1.4 percent.

Overall construction spending is up only 0.3 percent year-on-year to deepen what is a declining trend. These results will weigh on the expectations for the first revision to second-quarter GDP which came in at a very soft plus 1.2 percent in last week's initial estimate. But there's definitely upward pressure building in other housing data, pressure that points to eventual strength in construction spending.

Recent History

Construction spending is expected to bounce back in June, up a consensus 0.6 percent following steep declines in the two prior months of minus 0.8 percent and minus 2.0 percent. Construction spending on non-housing has been soft but spending on housing has been steadily climbing. Recent strength in housing starts is a positive indication for this report.


Bloomberg Econoday Quote of the Day

Mish Tweet on Construction Spending


Positive Indications Fall Flat

Diving into the the Census report on Construction Spending we see ...

  • Residential construction was down 0.1% for the month.
  • Nonresidential construction was down 1.0% for the month.
  • New private single-family construction was down 0.4% for the month.
  • New private multi-family construction was down 1.5% for the month.

So much for the idea that "Recent strength in housing starts is a positive indication for this report."

Year-over-year numbers are much better ...

  • Total private year-over-year +2.5%
  • Residential year-over-year private +2.6%
  • Residential year-over-year single-family +4.8%
  • Residential year-over-year multi-family +16.4%

Yet, year-over-year total construction spending is only up 0.3%.

Public construction influenced the overall number, down 6% year-over-year. Schools (-4.8%), street and highway (-5.8%), transportation (-5.1%), and sewage (-15%), and water supply (-11.7%) were the primary downside contributors.


Eight Miles High

Construction Spending


Byrds Musical Tribute

This post would not have been complete without a musical tribute.


Second Quarter GDP

Construction spending will lower the second estimate of second quarter GDP.

For more details on second quarter GDP please see ...

 

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