April construction spending increase is misleading. The report that April construction spending increased 0.8% from March does not mean that the construction rebound has begun. Total spending in April was 0.1% below the total initially reported for March because both February and March construction spending were revised about 1% lower. Removing the often mis-measured residential remodeling spending from the total, construction spending has drifted erratically but modestly lower since the beginning of the year. This is generally consistent with the forecast for a 12% decline in 2009 spending large due to the huge declines in November through January.

The revised spending data show that residential remodeling spending plunged 12.2% in February, stayed at about that reduced level in March and then recovered most of the abrupt drop in April. This is implausible. But by now we are used to wild swings and frequent large revisions in the remodeling data.

There are three key insights in the April spending report. First, the housing market continues to weaken rapidly, down 6.7% more. The recent stabilization of home sales will not stop the spending slide for a few more months. Second, the manufacturing and power markets continue to expand with each now nearly as large as single family housing. This is momentum from the 2003-07 business expansion which will not last much longer. Third, commercial real estate is more distressed than reported earlier with downward revisions for both office and retail construction spending.

U.S. Total Construction Spending
(billions of U.S. current dollars – annual figures)

*Residential Improvements include remodeling, renovation and replacement work.
Actuals: U.S. Census Bureau, Department of Commerce.
Forecasts and table: Reed Construction Data.