Pondering Today's Gigantic Miss on Construction Spending

-edited

The Oct construction spending report was much weaker than expected. That's on top of huge negative revisions for Sept.

Gigantic Miss

Economists at Econoday expected construction spending to rise 0.4% in October. Instead, spending fell 0.8%.

Worse yet, the Census Department revised september spending from 0.5% to -0.3%.

All told that is a gigantic economic estimate miss of a full 2.0 percentage points.

Residential Construction

Despite glowing new home sales reports, residential construction spending peaked in February of 2018.

Government spending has kept total construction spending flat.

If this was a single report, I would suspect an outlier. But the key chart lines point to early 2018.

New Home Sales Highest in 12 Years

Six days ago I reported New Home Sales Highest in 12 Years.

Q: Does today's report make sense?

A: Actually, it does.

Median Sales Price of Houses Sold for the United States

The median home sales price peaked in the fourth quarter of 2017.

Builders are building cheaper homes because no one can afford anything else.

Mike "Mish" Shedlock

Comments (14)
No. 1-9
Six000mileyear
Six000mileyear

The most recent pullback in home prices indicates a recession is 3-4 months away, if that.

DFWRealEstate
DFWRealEstate

Builders are building cheaper homes because they have to to maintain sales volumes. No builder wants to acknowledge the end of a business cycle, and the Fed's capitulation allowed builders to extend and pretend for what will likely turn out to be a short window. Carpe diem as they say. New home sales have been on a tear in recent months, but the euphoria already seems to be waning. The situation will likely look more somber a few months from now when the Fed's parlor trick becomes readily apparent in the housing market. Enjoy those ridiculously easy year-over-year comparisons while they last.

thimk
thimk

Hmmm builders sell cheaper homes to kept volume up to spur sales . might be seeing the same effect with Ford , they brought back the smaller Ranger/Bronco brand pickup trucks. Maybe a economy apple smart phone on deck ?

numike
numike

Homelessness, hunger and shame: poverty is rampant in the richest country in the world. Over 40 million people in the United States live below the poverty line, twice as many as it was fifty years ago. It can happen very quickly. https://www.youtube.com/watch?v=JHDkALRz5Rk

KidHorn
KidHorn

There's a new housing development near me. Townhomes that range in price from $600k-$1m. The community will have roughly 1500 housing units when fully developed. They build entire blocks at a time. I would guess maybe 80 units per block. They started out by building 5 or so blocks a couple of years ago. They haven't started any new blocks since. They continually have 1 last unit for sale. Which I assume is a marketing tactic. Either that or that last unit is a real dud.

Tony Bennett
Tony Bennett

"The Oct construction spending report was much weaker than expected. That's on top of huge negative revisions for Sept."

...

This report not (too) bad. September actually revised UP. What happened was August had a large upward revision too, which made September look weak. About what I expected as long end of yield curve tanked 60 bps in August and EVERYONE piled in and locked in low rate (much of it since given back). Pulled forward demand which will weaken year end numbers (October first evidence).

Numbers are millions SAAR.

September report:

Aug ... $1,287,054 Sept ... $1,293,614

October report:

Aug ... $1,305,986 Sept ... $1,301, 764 Oct ... $1,291,069

AWC
AWC

Humm, do I see a long term trend in that median sales price chart up there?

Like, maybe three steps forward and about half a step back?

Casual_Observer
Casual_Observer

I see more slow and low growth. Rates will decline again in 2020 and we get another refi boom along with cheaper prices of new homes to spur demand. If you are in the business of trading existing homes to make money you may have to take a bath on your last buy if you are competing with new home sales.

rjs
rjs

you have the revisions story all wrong....The annualized September construction spending estimate was revised 0.6% higher, from $1,293.6 billion to $1,301.8 billion, while the annual rate of construction spending for August was revised nearly 1.5% higher, from $1,287.1 billion to $1,305.986 billion. The combined upward revisions of $27.1 billion to annualized August and September construction spending figures would be averaged over the 3 months of the quarter and increase the annualized 3rd quarter construction figure by around $9.0 billion ex any inflation adjustment, which would thus suggest a upward revision of about 0.20 percentage points to third quarter GDP when the third estimate is released on December 20th...