May Construction Spending Reverses April Gains

Construction spending fell 0.9% in May, completely offsetting the revised 0.6% gain in April (which was initially 0.8%). This is slightly weaker than the consensus forecasts. Overall, construction spending has fallen 11.6% from year ago levels. Residential construction was poor, off 3.5% after a flat reading in April. Yet we know that housing starts rose from 454k in April to 532k in May. Non-residential construction rose a meager 0.1% after a 0.8% gain in April. Private spending fell 1% in May and public spending fell 0.6%.

While the residential mortgage market remains distressed, there are some signs that house prices are beginning to stabilize, though it is a very preliminary view. Some economists point to the rent-price ratios, which are arguably comparable to p-e ratios in equities, which shows the rental yields have risen to the highest level since 1987.

In recent weeks, a number of Fed officials appear to have expressed more concern over the commercial real estate market than the residential real estate market.