Economic Report: Construction spending dips as public works edge out private sector outlays

Bloomberg News/Landov

Workers build frames for the walls of a house under construction.

The numbers: Construction spending was at a seasonally adjusted annual $1.309 billion in October, 0.1% lower than a revised September spending pace of $1.311 billion, the Commerce Department said Monday.

What happened: Any strength in October came from the government. Public outlays on construction projects were 0.8% higher than in September, while private sector spending was 0.4% lower. Both sectors were higher compared to a year ago, public spending by 8.5% and private by 3.9%. In October, public works projects favored schools, spending on which was 2.6% than in September, over highway construction, which declined 0.1%.

Big picture: Overall spending was 4.9% higher than in October 2017, and for the year to date, it’s 5.1% higher than the same period last year. But there are some key areas where construction outlays are lagging, notably residential building. Residential spending was down 0.5% for the month, and the average pace of spending over the third quarter is now lower than in the first three months of the year.

Also read: Construction hiring is booming — and there still are plenty of available jobs

What they're saying: Construction economics analyst Ed Zarenski published a forecast on construction outlays from a variety of sources in November. Zarenski expects overall spending will increase 6.5% in 2018 and 4.8% in 2019. But he noted on Twitter that construction inflation has hovered just above 4% for the last few years, which means that inflation-adjusted, or real, volume growth will be closer to 1%.

Market reaction: Industrial stocks have suffered this year on concerns about a global trade war. Share of Caterpillar Inc. CAT, +3.13%   are down 14% in the year to date, slightly better than the 15% decline for Cummins Inc. CMI, +1.05%   shares.

See: The housing market’s slowdown is going to kill the home renovation boom too

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