Photographer: David Paul Morris/Bloomberg

Something Is Odd About the Latest U.S. Construction Data

Experts expect revisions to June's poor print.

Robust demand for mortgages. Real estate values rising at a solid clip. Construction employment in decent shape. A fresh cycle high for single-family home sales. 

USECBURB Index (US Employees on  2016-08-02 09-36-09
Source: Bloomberg

With all this working in the housing market's favor, it's hard to envision why residential outlays took a step back in the June construction spending report, notes Bespoke Investment Group.

Private residential spending declined to $445.8 billion in the last month of the second quarter, a stretch which saw this segment retreat by nearly 18 percent quarter-over-quarter (both figures in seasonally adjusted and annualized terms). This points to a downturn in a segment of the economy that analysts expect to serve as a key contributor to growth for the rest of this expansion, and flies in the face of the preponderance of data pointing to a pick-up in activity.

"It’s not particularly plausible that strong sales, price appreciation, and industry activity could lead to a major softening in spending as it currently appears to be," writes Bespoke Macro Strategist George Pearkes.

In particular, he highlighted a befuddling divergence between measures of activity — new housing units under construction — and the private residential spend numbers.

HUUC1UNT Index (Single Family Ho 2016-08-02 09-30-43
Source: Bespoke Investment Group/Bloomberg

"It’s strange that one (units) could be making new highs while the other (spend) was making new lows," remarks Pearkes. "Given as we mentioned before strong readings from a bevy of other housing market indicators, our inclination is to believe that spending will be revised up in coming months."

Such an outcome would be in line with recent history, the strategist suggests, as private residential construction spending has tended to see noteworthy revisions to the upside over the past year.

Construction Economics Analyst Edward Zarenski also expressed surprise at the poor June print and downward revisions to the two prior months.

Zarenski joined Pearkes in predicting this blip in U.S. housing data will be revised away in future reports.

"Expecting upward revisions in July not a comfortable position, but where I'm at right now," Zarenski tweeted. "Jobs report Fri[day] will be telling."

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