US Residential Construction Spending and Investment: May and 1Q 2017

US Residential Construction Spending and Investment: May and 1Q 2017

 National Association of Home Builders analysis of Census Construction Spending Wednesday data shows that total private residential construction spending in the US fell -0.6 per cent in May, the first decline after a strong start this year and the largest one since June 2014.

Elsewhere, final estimates of 1Q 2017 GDP growth (revised up two-tenths of a percentage point to 1.4 per cent) released June 30, show that housing’s share of gross domestic product (GDP) was unchanged at 15.6 per cent.

US Residential Construction Spending and Investment: May and 1Q 2017

The recent slowdown of US Census Construction Spending follows the housing starts declines over the three consecutive months. Nevertheless, the total private residential construction spending is +11.2 per cent higher than a year ago, NAHB said.

The monthly declines are largely attributed to the slowdown of multifamily construction spending. It slipped -3.3 per cent after a decrease of -0.2 per cent in April, but was +3 per cent higher since a year ago. Spending on single-family and home improvements halted their monthly gains in May, declining -0.3 per cent and -0.1 per cent, respectively. Nevertheless, on an annual basis, spending on single-family increased by +7.9 per cent. Home improvement spending was +3 per cent higher since May 2015.

Private nonresidential construction spending slipped -0.7 per cent on a monthly basis. However, it was +0.8 per cent higher than a year ago.

US Residential Fixed Investment

Final estimates of 1Q 2017 GDP growth (revised up two-tenths of a percentage point to 1.4 per cent), show that housing’s share of gross domestic product (GDP) was unchanged at 15.6 per cent, said NAHB June 30.

The home building and remodelling component—residential xed investment (RFI)—increased 0.1 percentage point to 3.6 per cent as a share of GDP. The rst-quarter expansion of RFI added 0.48 percentage point to the headline GDP growth rate (i.e. GDP would have expanded only 0.9% had RFI remained unchanged). Of the 31 quarters since the end of the Great Recession, only ve times has residential xed investment contributed more to GDP than it did in Q1 2017.

The second impact of housing on GDP is the measure of housing services, which includes gross rents (including utilities) paid by renters, and owners’ imputed rent (an estimate of how much it would cost to rent owner-occupied units) and utility payments. The inclusion of owners’ imputed rent is necessary from a national income accounting approach, because without this measure, increases in home ownership would result in declines for GDP. In the first quarter, housing services comprised 12 per cent of the economy or US$2.03 trillion, falling 0.1 percentage point from 4Q 2016.

On a year-over-year basis, private residential construction spending is up +11 per cent, according to Calculated Risk Monday. Non-residential spending is up slightly year-over-year. Public spending is down slightly year-over-year.

However spending for previous months were revised up.

Home Purchases Boost to Consumer Spending

Using the Consumer Expenditure Survey (CES) data from the US Bureau of Labor Statistics (BLS), NAHB Economics research released Thursday shows that a home purchase triggers additional spending on appliances, furnishings, and remodelling. NAHB’s most recent estimates are based on the 2012-2014 data and show that during the first two years after closing on the house, a typical buyer of a newly-built single-family detached home spends on average US$4,500 more than a similar non-moving home owner. Likewise, a buyer of an existing single-family detached home tends to spend over US$4,000 more than a similar non-moving home owner, including close to US$3,700 during the first year.

NAHB’s latest research updates the 2008 study that was based on 2004-2007 data.

The NAHB analysis controls for the impact of household characteristics on expenditures, and, nevertheless, finds that a home purchase alters the spending behaviour of homeowners and that otherwise similar homeowners spend more across all three categories compared to non-moving owners during the first two years after moving.

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