The NYT, like most of the rest of the media, reported that construction spending rose 0.3 percent in June. (Btw, I hate to nitpick, but the NYT article said that spending "increased by a seasonally adjusted annual rate of 0.3 percent in June." Actually the seasonally adjusted annual rate increased by 0.3 percent in June. If the June rate of increase was annualized, it would be approximately 3.6 percent [1.003^ 12].) Anyhow, focusing on the overall increase concealed three distinct stories in the data. First, the increase was driven by a 1.0 percent rise in public spending. Private spending actually fell by 0.1 percent in June. However, within private spending there was an unusual turnaround with residential construction 0.5 percent increase, while non-residential construction fell by 0.5 percent. The rise in residential construction is more evidence that the sector has finally bottomed out, although prices will continue to fall for another 6 months to a year. The drop in non-residential construction is likely to continue. There has been massive overbuilding in most sectors. At the moment, a surge in construction in the oil sector (presumably ethanol refining facilities) is offsetting large declines elsewhere. This will not continue for long.
--Dean Baker
