it’s been a fairly slow week for economic news releases…the December unemployment report, which would have typically been released on the first Friday of January, was rescheduled to be released on the 10th, and the GDP revision, usually at the end of the month, was released on the Friday before the holidays…one monthly report we normally dont cover that we could take a look at is Construction Spending for November from the Census Bureau, which goes into more important detail than the popular monthly report on new housing starts…since this report includes monthly data on not only private residential construction, but also private non-residential construction as well as construction spending for public use by governments, it’s an important input into the investment component of GDP…and since we did not cover the October release of this report, we’ll look at those numbers too, with an eye to gleaning some insight on how the quarterly data to date might effect 4th quarter GDP…

November Construction Spending Near Five Year High

as with all census reports on construction, we have to caution that this preliminary data still has a significant margin of error and is subject to revision; the report’s opening lines put this in perspective, noting that seasonally adjusted construction spending during November was estimated at a annual rate of $934.4 billion, 1.0 percent (±1.6%)* above the revised October estimate of $925.1 billion…as you should recall, an asterisk in Census data leads to the footnote warning than since the 90% confidence range contains zero, it’s uncertain whether construction spending increased or decreased month over month, that it could have risen by as much as 2.6% or fallen by 0.6%…they further explain that it may take 2 months to establish an underlying trend for total construction, and as long as 8 months for specific categories of construction; to that point we’d note that revised October data showed construction also rose by 1.0%, from $916.5 billion in September to $925.1 billion, and the revised September rise was even more, at 1.4%, so we can assume the increasing trend has been established, and if November’s numbers hold, it will be the highest construction spending since March 2009…the unadjusted data from which these annualized figures are extrapolated from indicates that November construction spending was at $77,965 million, down from $85,101 million in October, and down from $85,383 million in September, as we all know construction slows heading into winter; the seasonal adjustments make up for that normal downturn by comparing this year to the historical change…the headline data, and what we’ll be looking at, are seasonally adjusted and given at an annual rate, ie, what construction spending would be if that month’s change were extrapolated over an entire year….year over year figures show that  November construction was estimated at 5.9 percent (±2.0%) above last November’s annualized $882.7 billion, and year to date construction spending amounted to $828.4 billion, 5.0 percent (±1.3%) above the $788.8 billion for the first 11 months of 2012…none of these figures are adjusted for inflation, although costs for labor and material price changes have been subdued, so there’s probably not much inflation to adjust for….

breaking down recent months further, seasonally adjusted private construction rose at a 2.2% month over month rate in November, which when expressed as an annual rate would be at $659.4 billion, up from the revised October estimate of $644.9 billion; however, from September to October, the increase in private construction was statistically unchanged…of the November increase in private construction, $345.5 billion of the annualized figure was residential construction, 1.9% up from the revised October estimate of $339.2 billion, and $313.9 billion at an annual rate was non-residential private construction, which was up 2.7% from October’s revised estimate of $305.7 billion..revised figures show residential construction for October fell 0.4%, while non-residential construction spending was 0.5% above September… types of private non-residential construction spending seeing the largest seasonally adjusted monthly increases included commercial space, where construction spending rose 4.7% to an annualized $52,391 million, after rising 5.8% in October and which is now 20.7% ahead of the level of a year ago, private transportation construction, which also rose 4.7% to $13,492 million and is now 18.3% ahead of last year’s pace, office buildings, which saw a 4.6% increase to $32,493 million in November after a 7.1% increase in October and which was 11.5% above the November 2012 level, and construction of communication infrastructure, which rose 11.2% to $ million but which is nonetheless still 10,5% off last year’s pace…only construction of health care facilities, which slipped 1.2% to $30,149 million, and private education construction, which fell 3.2% to %16,900 million, saw less construction in November than October, but both of those as well as every other private construction type were at higher levels in November than at the end of the 3rd quarter…

however, the estimate of seasonally adjusted public construction, which is construction spending by federal state and local governments, fell by 1.8%  (±2.5%) to an annualized $275.0 billion in November after rising 3.1% to an estimated $280.2 billion in October; although this is still positive for the 4th quarter, public construction still remains 0.2% below its year ago level, and in real terms is at the same level as 2001….two major types of public construction saw increases in November; educational, which rose 1.1% to an annualized $65,176 million after increasing 7.1% in October, and spending on public power utilities, which rose 1.6% to $13,279 million after rising 3.6% in October..neither are up on a year over year basis, however: public construction for education is statistically unchanged since last November, and public power construction is still 2.2% below its level of a year earlier…

most other types of public construction spending were lower in November…public outlays for sewage and waste disposal facilities shrunk 8.1% to $20,482 million after falling 1.0% in October…construction of public health care facilities was off 7.3% to $10,158 million after rising 1.2% in October, while construction of government office space fell 4.6% to $7,985 million; outlays for public conservation were off 4.9% to $6,204 million, spending for construction of water supply infrastructure fell 4.8% to $12,720, spending for buildings used by public safety forces fell 1.2% to $9,590 million, public transportation construction spending fell 2.4% to $29,948 million, and road construction was down 0.4% to $82,049..

our first FRED graph below shows the track of each of the 3 major categories of construction spending since the beginning of 2005, with millions of dollars spent for each shown on the left margin; blue shows the annualized value all residential construction monthly, including apartment buildings, and clearly shows the housing boom and subsequent bust; red shows the track of all private nonresidential construction spending, which as we’ve seen is mostly for commercial and industrial development, over the same time frame, and also shows that this type of construction spending, with long lead times, was actually highest during the recession, marked by the grey vertical bar, and collapsed thereafter as projects already underway wrapped up; finally, the green track is for public construction spending, which also shows a similar pattern, as larger projects and those initiated as the result of the 2009 Federal stimulus kept public spending high throughout 2010, only to taper off thereafter, as lower tax receipts constrained much of such spending at the state and local level…

FRED Graph

our second FRED graph for this data focuses on the recent changes in public construction spending, as this sector has been a drag on GDP throughout the recovery; each group of six bars indicates changes in millions of dollars for each type of construction for each month since the beginning of 2012, with blue indicating the monthly change in highway and road construction spending, red the monthly change in outlays for school buildings, green the change in spending for public water supply, orange the monthly change in spending for public transportation, violet the change in public spending for sewage and waste disposal facilities, and grey bars indicating the monthly change in construction spending for public power utilities…clearly, the series is quite volatile, although the contraction seen earlier in the recession seems to have abated… (click to enlarge)

FRED Graph 

Case-Shiller Says Homes “Return” 13.6%  Year over Year in October

also released this week, on Tuesday, was the S&P Case Shiller home price index for October, which compares a 3 month unweighted average of prices received for homes sold in August, September and October to prices received for the same houses the last time they were sold, and generates an monthly index such that prices for homes in 2000 = 100…for this October release, both the original ten city index and the expanded 20 city index increased 0.2% from the September report, with the 10 city index at 180.27 and the 20 city index at 165.91…both Composite indexes also saw a year over year increase of 13.6%, which was the greatest one year jump in prices since the height of the bubble in 2006 and the 17th consecutive month that the two indexes have posted a year over year increase…our FRED graph below shows the track of both indexes since their origination; the Composite Index for the ten original metro areas (Boston, Chicago, Denver, Las Vegas, Greater Los Angeles, Miami, New York, San Diego, San Francisco, and Washington DC) is shown in red, and Composite 20, which includes the metro areas of the ten city index and added prices for Phoenix, Tampa Bay, Atlanta, Detroit, Minneapolis-Saint Paul, Charlotte, Cleveland, Portland, Dallas, and Seattle metro areas to the original 10 in 2000…note that although we and others call these city indexes, they are actually tracking prices for the entire Metropolitan Statistical Areas as defined by the Census bureau…also note that as these are not seasonally adjusted, we can see the obvious seasonal variation as home prices typically rise in spring and fall after the school year begins…

FRED Graph

according to S&P, ten metropolitan areas “posted positive monthly returns” in October, nine saw home prices fall, and home prices in New York City were statistically unchanged…Las Vegas showed the largest increase as home sales prices rose 1.2%, followed by Miami with a 1.1% monthly increase, and Phoenix and Los Angeles, where home prices rose 0.9%…Chicago home prices fell by 0.5%, and both Denver and Washington DC prices fell 0.4%, leading those cities where prices declined, which also included Atlanta, Boston, Cleveland, Dallas, San Francisco, and Seattle…only Denver saw net prices decline over the past two months, while Cleveland home prices were essentially unchanged since August…

all 20 metro areas saw prices rise year over year, with Las Vegas prices up 27.1% topping the chart, and with San Francisco 24.6% higher and Los Angeles up 22.1% also posting price increases of over 20%…San Diego saw home prices rise 19.7%, Atlanta prices were up 19.0%, Phoenix prices rose 18.1%, and Detroit prices were 17.3% higher than October 2012…on the other end of the spectrum, home prices in Cleveland and New York were only up 4.9% over one year, Washington DC area saw prices rise 7.4%, Boston prices were up 8.6%, Charlotte prices rose 8.8%, Denver prices were up 9.5% and Dallas prices were 9.7% higher than a year earlier…the bar graph below, from Robert Oak’s coverage of this month’s report, shows the Case-Shiller index as of October for each of the 20 cities in the Composite 20; recall that all Case Shiller indexes were set to 100 in the year 2000, so these indexes in effect measure the price change since then, such that Phoenix, the first bar on the graph with an index level of 144.49, means that the average home in that city has seen 44.49% price appreciation since then…note that these indices are not adjusted for inflation; however, we coincidentally benchmarked our own inflation gauges of CPI components to the year 2000, the same year as these indexes are benchmarked to, so we can see that the housing component of the CPI, shown in red, is up 38% since then

October 13 Case Shiller Indexs

it’s important to understand that these indexes are not prices, nor are they relative to each other…again, each city index was set to 100 in 2000, and thus so were the composite averages of 10 or 20 cities….but homes in a given city with an index number of 150 just implies that home prices have risen 50% in that city over the last 13 years; as it would imply for another city with the same index value…but home prices could still be half or twice as much in a city with a 150 index value as another city with the same index reading…to illustrate that, we can look at some of the median home prices for cities from the Zillow Home Value Index, which is calculated from the online Zillow real estate database, where we find that the median price for a home in New York City was $354,100 in October, while the median price for a home in Miami was $175,000, even though they both have an Case Shiller index value of just over 173…all the index value for both means is that average prices in both cities are 173% of what the prices were in 2000; in New York’s case, that would be something around $204,600, while prices in Miami were likely near $100,900 13 years ago… 

ISM Manufacturing PMI at 57.0% in December, Indicating Continued Expansion

the other widely followed index that was released this week was the December Manufacturing PMI (Purchasing Managers Index) from the Institute for Supply Management (ISM); which was down 0.3% to 57.0% but still at a level that indicated a decent level of expansion in the manufacturing sector…the manufacturing PMI is a composite index based on equal weights of the new orders, production, employment,  and inventories indexes, which themselves are diffusion indexes calculated from responses to questionnaires sent to purchasing executives on the current conditions in their industry; wherein each response of “better” out of a each hundred queries adds one to the index; each response of “the same” adds a half point, and responses of “worse” are not counted; no weighting is given for the different sizes of businesses polled, or whether conditions are a whole lot better, just marginally so, or a whole lot worse…thus any reading over 50 simply means more purchasing managers polled indicated that sector of business was expanding than those who said it was contracting, and vice versa for readings under 50…

of the five indexes that are composites of the PMI, the new orders index was at 64.2%, up from 63.6% in November and the highest since April 2010, indicating ongoing and significant increases in new orders; the production index was at 62.2%, down 0.6% from November’s 62.8%, but still indicating brisk production increases, while the employment index was at 56.9%, up from 56.5%, indicating a pickup in hiring; the suppliers deliveries index was at 54.7%, up 1.5% from November, meaning that deliveries were even slower, presumably indicating suppliers were busier and hence business was better, and the inventories index, which slipped significantly into contraction at 47.0% from a barely expansionary reading of 50.5% in November…

other indexes included in this report that are not part of the composite PMI included the exports index, which fell 4.5% to 55.0%,  indicating export business what growing somewhat slower, the imports index, which was unchanged at an expansionary 55.9%, the prices index, which increased 1.0% to 53.5%, a positive as higher prices are indicative of stronger demand, the backlog of orders index, which declined 2.5% from 54.0% to 51.5%, which nonetheless still indicates growth, and customers inventories, which increased from 45.0% in November to 47.5% in December but were still too low… 

of 18 manufacturing industries whose purchasing managers contribute to this survey, 13 indicated expansion; the ISM does not give a numerical value to these, but simply lists them in order of fastest growth; leading the list of fastest growing manufacturers in December was furniture & related industries; plastics & rubber products; textile mills; and apparel and leather goods, while the four industries reporting contraction in December were nonmetallic mineral products, machinery; chemical products; and electrical equipment, appliances & components…

the ISM claims their survey is consistent with the results of the Full Report on Manufacturers’ Shipments, Inventories, and Orders from the Census Bureau, which we’ve occasionally reported on as the advance report on Durable Goods or as the full report on Factory Orders, and since they often report well ahead of the Census, many analysts believe that this release gives them an advance insight into the hard data that wont be released for another month…on our FRED graph below, we’ve included the track of the ISM manufacturing new orders index in blue since the beginning of 2007, and the percentage change in the value of new orders for all manufacturing monthly in red over same span….theoretically, the new orders from the PMI should lead the factory orders change; we’ll let the viewers decide if it appears that the blue purchasing manager’s new orders index has predicted the actual direction of real new orders in red over time or not…

FRED Graph

(the above is my weekly commentary that accompanied my sunday morning links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me…)