Volatility once again hits the construction spending report where an unexpected sharp decline in April, at minus 1.4 percent, is offset by a giant upward revision to March which now stands at plus 1.1 percent vs an initial 0.2 percent dip.
The residential side of the report, at minus 0.7 percent in April, shows the first decline in 7 months, pulled lower by a sharp drop in residential improvements and spending on new condos that offset a solid 0.8 percent gain for new single-family homes.
The non-residential side shows a 0.6 percent decline for private building, hit by contraction for factories and power plants, and a 2.0 percent dip for public building with both highways and education lower.
This report is yet another bad result for April as the upward revision to March pulled spending out of the second quarter and into the first. And it’s the second quarter that is in focus right now and housing, including sales and starts and now construction, have all been disappointing.
Revisions Impact on GDP
Compared to last month revisions are not as big. February construction spending rose 0.1 percentage points from the number posted last month. March was a huge revision, however, up 1.3 percentage points vs the prior report.
The March revision will have a small upward impact on first quarter GDP. I estimate 0.1 to 0.2 percentage points.
- Why massive construction spending revisions are the norm is a mystery.
- Why economists thought construction spending would jump this month is an even bigger mystery.
Somehow, economists could not foresee a decline in construction spending even though new home sales collapsed 11.4%.
Mike “Mish” Shedlock