Sunday, March 3, 2024

Construction's "cutback" in January isn't a big deal. And should be rebound in Feb.

One item that finished up 2023 in a strong place was the construction industry, and we got a report on Friday to see how 2024 began.
U.S. construction spending unexpectedly fell in January as weakness in outlays on public projects more than offset a moderate increase in private homebuilding.

The Commerce Department said on Friday that construction spending dropped 0.2%. Data for December was revised higher to show construction spending increasing 1.1% instead of 0.9% as previously reported.

Economists polled by Reuters had forecast construction spending rising 0.2%. Construction spending increased 11.7% year-on-year in January.

Spending on private construction projects gained 0.1% in January after rising 0.8% in December. Investment in residential construction rose 0.2% after surging 1.4% in the prior month.
So is this a big warning sign for a slowdown in 2024? It doesn't seem like it to me. Almost all of the decline for January can be accounted for in a $3.2 billion drop in public highway and street spending, which followed a runup of nearly 14% in the last 3 months in that area of construction. So that seems like a breather and/or short-term slowdown due to the brutal weather in mid-January.

Given that we've had a record-warm February (especially in the cold-weather states where construction usually is dormant this time of year), I would expect some of that seasonally-adjusted decline in January to reverse in the next month.

We also saw construction in single-family home building continue to rise in January, which is a trend that we've had for 9 straight months at this time.

And manufacturing construction continued its boom in January, which directly goes back to legislation that President Biden and Dems backed in 2022.

So I'd expect hiring to continue in construction for the February jobs report that hits later this week, and given that we are still seeing elevated spending for bridges and roads from the federal government in this year, I think this is going to stay strong at least for the start of 2024.

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