Economic News Blog
Posted by: Steven Kline, Jr. 5. January 2016

Construction Spending still Going Strong

The value of construction put in place in November 2015 was $93,662 (millions of real dollars). This was the first time since July that the real value of construction spending was below $100,000 million. Compared with one year ago, spending in November was up 17.6 percent, which is a historically strong rate of growth. However, the rate of growth has decelerated the last two months. And, these two months were the first time growth was below 20 percent since March 2015.

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. And, the Federal Reserve finally raised its overnight lending rate. But, the market may already be taking care of low interest rates on its own as the real 10-year treasury rate has already rising year over year for some time. 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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