Economic News Blog
Posted by: Steven Kline, Jr. 12. October 2015

Construction Spending Continues Record Growth Rates

The value of construction put in place in August 2015 was $100,910 (millions of real dollars). This was the first time the figure has been above $100,000 since November 2007. Compared with one year ago, spending in August was up 22.5 percent. This was the fastest rate of month-over-month growth in the history of the dataset, which goes back to 1970. The month-over-month rate of growth has accelerated rapidly since August 2014. In fact, August was the fourth month in a row that the month-over-month rate of change has increased more than 20 percent. The annual rate of change is now 12.9 percent, which is the fastest rate of annual growth since June 1985. 

With the Fed dithering on raising interest rates because of weak wage growth, weak GDP, fear of a falling stock market, government interest payments, 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 velow, 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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