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Construction Spending Takes a Tumble

construction-twoJust when the industry was beginning to feel hopeful about more dollars being poured into the construction sector, spending in this area reversed course.

The U.S. Census Bureau of the Department of Commerce reported Wednesday that construction spending in April 2016 was estimated at a seasonally adjusted annual rate of $1,133.9 billion, 1.8 percent below the revised March estimate of $1,155.1 billion.

Year-over-year, the April construction spending figure is up 4.5 percent from $1,085.0 billion last April, the Bureau reported. During the first 4 months of this year, construction spending amounted to $334.8 billion, 8.7 percent above the $307.9 billion for the same period in 2015.

After experiencing the largest decline in three months and raising unexpected concerns among market watchers in the industry, U.S. construction spending bounced back in March, the U.S. Census Bureau of the Department of Commerce announced last month. According to the data, construction spending for March was estimated at a seasonally adjusted annual rate of $1,137.5 billion, 0.3 percent higher than February’s estimate of $1,133.6 billion. Year-over-year, construction spending was up 8.0 percent from the March 2015 estimate of $1,052.9 billion.

Dr. Issi Romem, Chief Economist at BuildZoom told MReport that home construction is on the rise right now, and it is increasing for single-family homes as well; it’s just not hitting the pre-recession levels or the level we saw in the early 2000s during the housing boom.

"Whether that’s a good thing or a bad thing is not obvious. It’s not trivial that we want to go up to those levels we were at then," he said. "The catch to understanding how this corresponds to low inventory is that there’s not really a shortage of housing in America—there’s a shortage of housing in specific places in America, and it’s in those metro areas where there’s a shortage of homes—because there is very strong demand for living there—that prices have been going up over the last three or four decades."

According to the April data, private construction spending fell 1.5 percent below the revised March estimate of $855.9 billion to a seasonally adjusted annual rate of $843.1 billion. Meanwhile, residential construction was at a seasonally adjusted annual rate of $439.7 billion in April, 1.5 percent below the revised March estimate of $446.3 billion. In addition, nonresidential construction was at a seasonally adjusted annual rate of $403.5 billion in April, 1.5 percent below the revised March estimate of $409.6 billion.

"For the rest of the year, I expect you will see construction numbers continue to increase at a gradual pace, and you will probably see those prices continue growing as slowly as they have in the past year, if not a bit slower," Romem said. "My guess is that some parts of the country might be near an inflection point where they start dropping or at least stay level for a while. I don’t think there’s a big crash in our future, but I anticipate a modest slow-down of housing price growth in expensive coastal cities and continued growth in more expansive, lower-priced cities."

Editor's note: Read more about construction and inventory levels in an exclusive interview with Issi Romem, Chief Economist at BuildZoom in the June 2016 edition of MReport. 

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