May Construction Report - Very Weak Residential Construction Growth
The May construction report on spending was terrible. Mostly because of weakness in residential construction. It was down 0.8% monthly which missed estimates for 0.1% growth and April’s 0.4% growth.
To be fair, April’s reading was revised up 4 tenths, so the comp got tougher. The yearly decline was 2.3% in May and 0.8% in April. Real residential investment growth will probably be positive in Q2. But not by much especially after this weak reading.
The chart below shows the yearly growth in residential and non-residential construction put-in-place. Keep in mind that the x axis starts at -20%. It’s slightly confusing since most start at 0%.
Residential spending was down 0.6% and has been down every month this year. On a yearly basis, it was down 11.2%. The weakest segment of residential construction spending growth was home improvements as it was down 22%.
That’s a bad indicator for the health of the consumer.
May Construction Report - It highlights the weakness in the housing market. It also shows how housing starts isn’t the only stat that needs to improve to turn around this index.
Single family residential construction was down 7.7% yearly and multi-family construction growth was 9.3%. The high expense of single family housing is making more multi family homes necessary.
Public construction spending has been strong all year, but in this report there was modest weakness. There were declines in highway and street spending and no change in education spending.
Federal and state & local spending fell monthly, but were up 4.7% and 11.2% yearly. Finally, private non-residential spending fell 0.1% yearly. Spending on manufacturing, offices, and commercial buildings all fell.
Solid June Motor Vehicle Sales Report
May Construction Report - Manufacturing PMIs which were expected to be terrible and were only weak. Similarly, the June motor vehicle sales report saw a monthly decline, but beat estimates. This report is consistent with the recent range. So I’d say this is neutral reading while the manufacturing reports were weak.
As you can see from the chart below, total sales fell from 17.4 to 17.3 million which beat estimates for 17 million. Keep in mind the May reading was revised higher by 0.1, so this report was the same as the initial May reading.
It beat the high end of the estimate range which was 17.1 million. On a non-seasonally adjusted basis, sales fell 4.6 basis points. Domestic sales were 13.4 million which was the same as the original May reading, but 0.2 million below the upwardly revised reading.
May Construction Report - Solid Redbook Sales
With the Redbook same store sales growth reading in the week of June 29th showing growth improving from 5% to 5.5%, it’s fair to expect the June retail sales report to be solid.
Peaks in June aren’t as high as the near 6% peaks in May, but these results are still solid. Remember, the previous week’s reading was interesting because the Conference Board consumer sentiment report showed some weakness.
Since then we’ve gotten a few positive sentiment readings which are now supported by this solid growth improvement. June retail sales report will come out on July 16th. Eestimates aren’t out yet.
Jobless Claims & Job Cuts
May Construction Report - Jobless claims report came out on Wednesday because of the 4th of July holiday. It showed jobless claims fell from 229,000 to 221,000 which means they have been below 250,000 for a record 91 weeks.
It’s not a surprise this is a record since this is the longest expansion since the 1800s and claims have been low this cycle. The 4 week moving average rose from 221,750 to 222,250 which means the 4 week average has been between 215,000 and 225,000 for 9 straight weeks.
There hasn’t been much movement here. Oxford Economics expects the unemployment rate to fall to 3.5% by the end of the year. Even though it expects growth to slow and 3 rate cuts in the next 9 months, there isn’t an expectation for the unemployment rate to increase.
Finally, continuing claims fell slightly to 1.686 million and the 4 week moving average fell to 1.687 million.
The Challenger Job Cut report has been one of the most bearish readings on the labor market this year.
May Construction Report - Bears didn’t love the June report though as it showed announced layoffs fell from 58,577 to 41,977. Layoffs in the 2nd quarter were 140,577 which was down from the Q1 total of 190,410. These layoffs vary wildly, so quarterly averages are the best way to review the data.
Layoffs are supposed to be a leading indicator for the labor market, but based on the past few months of jobless claims, the elevated layoff announcements in Q1 were much to do about nothing.
Bears lost a point in their thesis that the economy is headed towards a recession. This report had been one of the only readings suggesting significant problems in the labor market.
Very Good Purchase Applications Growth
May Construction Report - We are now in the 2nd half of the year which means we can expect better housing market growth on a yearly basis because the comps will get easier. Obviously, some of the data lags, so we won’t have 2nd half data from all the reports for a couple months.
Next week’s MBA report will be the first July housing data to come out.
MBA mortgage applications composite index was down 0.1% in the week of June 28th. Purchase index was up 1% weekly on top of a 1% decline. Yearly growth was a fantastic 10%.
Refinance index fell 1% after rising 3%. Weekly 30 year mortgage interest rate average didn’t come out early because of the holiday like some other data points. I wouldn’t be surprised to see another small drop.
May Construction Report - Conclusion
In this article I reviewed a terrible construction spending report, and solid motor vehicle sales. Also, Redbook same store sales reports, and good data on the labor market and housing market.
Bears get to add the huge decline in home improvement spending to their thesis, but can no longer claim layoff announcements are highly elevated.
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