Construction outlays in June unexpectedly rebounded. Overall construction spending rose 0.3 percent in June after falling a revised 0.8 percent in May. The June boost was well above the consensus forecast for a 0.5 percent decrease. The gain in spending in June was led by a 1.0 percent increase in public outlays. Also, private residential outlays rebounded 0.5 percent in June after a 3.1 percent drop in May. However, private nonresidential construction spending fell 0.5 percent, following a 0.4 percent decline in May.
We may be seeing another sign that we have hit bottom in the single-family housing sector. Within private residential, one-family outlays rebounded 2.4 percent while the multifamily component dropped 7.2 percent.
The 0.5 percent decline in private nonresidential outlays included component decreases in lodging, commercial, educational, amusement & recreation, transportation, communication, and power. Posting gains were office, health care, religious, and manufacturing components
On a year-on-year basis, overall construction outlays rose to minus 10.3 percent in June, from minus 11.6 percent the month before.
Overall, today's report suggests that the recent rise in housing starts is translating into construction outlays. However, it still is uncertain about why public outlays are up. Fiscal stimulus may be kicking in but a decline in state revenues is still an issue. The further dip in nonresidential spending should not be a surprise but some may have forgotten that nonresidential construction is a lagging indicator.
Equities rose on today's report but there also was a boost from the ISM manufacturing report which moved up significantly and close to breakeven.
Market Consensus before announcement
Construction spending declined 0.9 percent in May after gaining 0.6 percent in April. The reversal in outlays in May was led by a 3.4 percent drop in residential outlays, followed by a 0.6 percent decline in public construction. Nonresidential outlays gained 0.5 percent. Looking ahead, healthy gains in housing starts of 17.3 percent in May and 3.6 percent in June could push the residential component of outlays back up. But the public component is still being weighed down by declines in state & local government revenues and nonresidential outlays are on an easing trend due to lower corporate profits, less cash on hand, and cutbacks in commercial lending.