Economic News Blog
Posted by: Steven Kline, Jr. 2. December 2015

Construction Spending Booming but Signs of Slowing

The value of construction put in place in October 2015 was $101,109 (millions of real dollars). This was the third month in a row the figure has been above $100,000, which are the first months above $100,000 since November 2007. Compared with one year ago, spending in October was up 21.1 percent. While this rate of growth is very fast on a historical basis, it was the slowest rate of growth since May 2015. The annual rate of change is now 17.0 percent, which is the fastest rate of annual growth ever. However, the recent data indicates that the annual rate of change should peak in the next three to six months.

With the Fed dithering on raising interest rates because of weak wage growth, weak GDP, fear of a falling stock market, government interest payments, the rising dollar, or whatever reason, another major bubble is being built in construction spending. The bubble in construction spending is happening as consumers are already starting to moderate their spending, which means the revenue may not be there to support all of the construction loans. Of course, the market may take care of this problem on its own as the real 10-year treasury rate is already rising year over year. Based on the chart below, a rising 10-year treasury rate (the red line below zero - a positive number - on this chart) always leads to a significant drop in the rate of change in construction spending (althought not necessarily a contraction).

Real construction spending is a good leading indicator for construction materialshardware, and HVAC industrial production.

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