Construction Spending: Weakness Continued into May

Bottom Line: Construction fell in the early reading of May activity, coming in well below expectations. The residential sector led the declines. However, the Census Bureau's construction tallies are often heavily revised. And given several other datapoints suggest a sharp rebound in the second half of May, we would guess the residential construction figures will get revised higher. Still, there are reasons for medium - to longer-term concern. Revenue in the healthcare sector has been severely hurt by the restrictions for elective procedures amid the pandemic. And that sector was historically a major force behind nonresidential construction. Early indications suggest the losses in the sector could lead to a pullback in capital investment and new construction projects. Public construction, especially highways and streets, continued in most places and provided a boost to the overall tally. Overall, construction should see gains from the residential sector going forward, but private nonresidential remains concerning. Construction Spending FELL by 2.14% in May, compared with market expectations for an increase of 1.0%. The April estimate was revised modestly lower from -2.91% to -3.52%, while the March estimate was revised modestly lower from 0.0% to -0.3%. Construction spending is now 0.3% ABOVE its year-ago level. Residential Construction FELL by 4.0%, Homebuilding is now 0.7% ABOVE its year-ago level. Nonresidential Construction FELL by 2.4%. Nonresidential construction growth is now 3.4% BELOW its year-ago level. Public Construction ROSE by 1.2% and is now 4.7% ABOVE its year-ago level.