Labor Shortages, Material Costs, Cause Construction Stumble in June

Construction spending fell unexpectedly in June.  The U.S. Census said overall spending was down 1.1 percent from the May estimate to a seasonally adjusted annual rate of $1.332 trillion.  Spending was still higher, by 6.1 percent, than the June 2017 annual rate of $1.241 trillion.  The loss was somewhat mitigated by a substantial revision to the May numbers.  Originally estimated at a rate of  $1.310 billion, an 0.4 percent increase from April, the total was revised up to $1.332.2 billion, a healthy 1.35 percent gain. 

Analysts had expected a small gain in June.  Those polled by Econoday reached a consensus of an 0.3 percent uptick, although the estimates ranged from an 0.3 percent loss to a positive 1.1 percent.

On a non-adjusted basis total construction spending in June was $118.896 billion compared to 115.517 billion in May, but year-to-date (YTD) expenditures through the first half of the year are 5.1 percent higher than the same period in 2017, $619.881 billion versus $589.638 billion.

Privately funded construction came in at an annual rate of 1.019 trillion, down 0.4 percent from May but 6.5 percent higher than the previous June. The YTD spending on private construction was up 5.2 percent, $485.083 billion compared to $460.919 billion in 2017.

Residential spending was also down, 0.5 percent for the month to a seasonally adjusted annual rate of $568.295 billion, 8.8 percent higher than a year earlier.  On a non-adjusted basis there was $51.878 billion in residential construction put in place during the month and YTD spending is up 8.3 percent to $266.463 billion.

Both single-family and multi-family construction moved lower in June, single family by 0.4 percent to a rate of $287.416 billion, and multi family was down 2.8 percent.  The rate of single-family construction is running  6.8 percent ahead of the June 2017 rate while multifamily hung on to a 1.8 percent gain.

YTD spending for single-family houses was $134.872 through the end of June, and multifamily totaled $29.616 billion.  That put spending on single-family construction thus far in 2018 up 9.0 percent, but multi-family trails the YTD in 2017 by 0.7 percent.

Publicly funded construction was at a seasonally adjusted rate of $297.443 billion in June, down 3.5 percent from May and lagging June 2017 by 2.5 percent.  The annual rate for publicly funded residential construction was $6.525 billion annualized, 3.7 percent behind May expenditures and down 2.5 percent for the year.

Econoday's commentary on the data attributed part of the weak construction spending number to shortages of construction workers, especially skilled labor, as well as high prices for construction materials. The weakness in spending in the residential sector, it says, will continue to limit buyer choices and overall home sales.