The Obama administration keeps claiming that we’re building up our recovery, but new construction data from Commerce shows we’re not building too much of anything these days. Construction spending in May dropped 0.6% overall from April, contributing to a year-to-date decline over 2010 of 6.3%. Spending in both public and private construction fell:
The U.S. Census Bureau of the Department of Commerce announced today that construction spending during May 2011 was estimated at a seasonally adjusted annual rate of $753.5 billion, 0.6 percent (±1.6%)* below the revised April estimate of $757.9 billion. The May figure is 7.1 percent (±1.8%) below the May 2010 estimate of $811.2 billion.
During the first 5 months of this year, construction spending amounted to $285.1 billion, 6.3 percent (±1.4%) below the $304.4 billion for the same period in 2010.
PRIVATE CONSTRUCTION
Spending on private construction was at a seasonally adjusted annual rate of $477.2 billion, 0.4 percent (±1.4%)* below the revised April estimate of $479.3 billion. Residential construction was at a seasonally adjusted annual rate of $228.9 billion in May, 2.1 percent (±1.3%) below the revised April estimate of $233.8 billion. Nonresidential construction was at a seasonally adjusted annual rate of $248.3 billion in May, 1.2 percent (±1.4%)* above the revised April estimate of $245.4 billion.
PUBLIC CONSTRUCTION
In May, the estimated seasonally adjusted annual rate of public construction spending was $276.3 billion, 0.8 percent (±2.2%)* below the revised April estimate of $278.6 billion. Educational construction was at a seasonally adjusted annual rate of $68.6 billion, 2.3 percent (±3.0%)* below the revised April estimate of $70.2 billion. Highway construction was at a seasonally adjusted annual rate of $74.7 billion, 1.5 percent (±7.5%)* below the revised April estimate of $75.9 billion.
The drop in public construction was easily foreseen. The 2009 stimulus package essentially sped up existing public-sector construction jobs by incentivizing state and local governments through federal subsidies. These were the supposedly “shovel ready” jobs that Obama insisted would float the economy back to strength. With the subsidies gone and local and state governments struggling for cash, new public projects will not fill the gap. The effect will be similar to what was seen in the Cash for Clunkers program and the homebuyer tax incentives, which was to simply shift demand from future quarters to the present. That’s why it has dropped 9.3% over the past year, seasonally adjusted.
More worrisome is the lack of private construction. This indicates a lack of enthusiasm for investment in expansion and new enterprise. That is key to boosting job creation, and to see it drop 5.8% over the past year shows a lack of confidence in the economy that won’t be easily overcome.
Meanwhile, there are other mixed economic signals. First, the manufacturing sector rebounded slightly in June, according to one industry analysis:
The pace of growth in the manufacturing sector picked up for the first time in four months in June, a sign of optimism for the sputtering economy, according to an industry report released on Friday.
The Institute for Supply Management said its index of national factory activity rose to 55.3 from 53.5 the month before. The reading topped expectations for 51.8, according to a Reuters poll of economists.
A reading above 50 indicates expansion in the manufacturing sector, while a number below 50 means contraction. The report alleviated some fears over the strength of the recovery but analysts said it was not yet a clear sign that the recent weakness in growth was past.
It’s hardly a sharp step in either direction, but at least it went the correct direction for the first time in four months. Consumers, however, are not convinced, as Reuters reports:
Consumer sentiment worsened in June on jitters about the economic outlook and spending is likely to remain lackluster in the long-term, a survey released on Friday showed. ….
The final reading for the consumer sentiment index came in at 71.5, down from 74.3 the month before. It was a hair below the preliminary June figure of 71.8 and shy of the median forecast for 71.9 among economists polled by Reuters.
This time, Reuters doesn’t use the U word, and it doesn’t pull punches about the outlook for the next few months … and years:
While small spending gains can be expected in the second half of the year, the trend is more likely to vary between lackluster and zero than lackluster and robust over the next several years, the survey said.
“Resurgent spending is not on the horizon, nor is widespread retrenchment,” survey director Richard Curtin said in a statement. “Importantly, the consumer no longer has the financial wherewithal to power the economy into overdrive.”
And why is that? Because unemployment has been too high for too long. Until investors see reasons to start expanding and creating new ventures, that will continue to be the case. This is a snapshot look at stagnation.
Update: Weight of Glory links to ZeroHedge in the comments, which points out that the ISM increase comes with a familiar caveat: 1.1 points of the 1.8-point uptick came from increases in inventories, which means lower production in the future unless demand starts to increase significantly.
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