Headline growth in US construction spending collapsed in July to just 1.6% YoY – the weakest since 2011.
As Reuters reports, U.S. construction spending unexpectedly fell in June as investment in public projects recorded its biggest drop since March 2002. The Commerce Department said on Tuesday that construction spending tumbled 1.3 percent to $1.21 trillion – the lowest level since September 2016 – drastically missing economists’ estimates of a 0.4% increase.
This downside surprise suggests notable downside revisions to Q2 GDP (from its 2.6% annualized level).
However, most ironic in the government’s report was, amid The White House constant chatter of the need for infrastructure spending in America, Federal government construction spending crashed 9.5% – the largest drop since December 2010.
Public construction spending has hovered in negative territory for the most part of the past year and requires a strong infrastructure spending for its revival. The latest data suggest state and local investment was weaker-than-previously estimated and imply a further modest downward revision to 2Q GDP.
In June, investment in public construction projects plunged 5.4 percent, the biggest drop since March 2002. The decline pushed public construction spending to its lowest level since February 2014. Outlays on state and local government construction projects fell 5.1 percent in June, also the largest fall since March 2002.
As Bloomberg Intelligence notes, the trends in the underlying components of construction spending of late are disconcerting, though the private sector slowdown could prove temporary as housing supply needs to increase. The public sector’s bleak performance is unlikely to see a significant change without a significant fiscal boost in the form of a well-thought-out infrastructure spending program.
Looking at taxpayer-funded spending on America’s highways, schools and water systems, the White House’s infrastructure plan appears long overdue. Government projects’ share of total construction outlays was less than 22 percent in June, the smallest since 2006.
Does this look ‘transitory’ to you?