October 6th, 2021
Construction spending was flat overall, with residential construction posting gains. Meanwhile, personal incomes and spending, as well as inflation, grew, as did layoffs.
Construction spending hovered at an annual rate of $1.584 trillion in August, which was unchanged from July\’s revised rate of $1.584 trillion, according to last week\’s report from the Census Bureau. This was well off from the 0.3 percent increase that economists had forecasted for August.
That said, when compared to the same period a year ago, August\’s construction spending was 8.9 percent higher than August 2020\’s pace of $1.455 trillion.
Spending on private construction in August ticked down to an annual rate of $1.242 trillion, which was 0.1 percent below July. Spending on housing construction in August grew to an annual rate of $786.6 billion, which was 0.4 percent higher than July\’s revised pace of $783.5 billion.
Drilling down into residential construction spending, outlays on the construction of new, single-family homes in August expanded to an annual rate of $413.4 billion, which was 0.7 percent higher below July\’s revised rate of $416.1 billion. Spending on the construction of new multi-family housing decline to an annual rate of $99.4 billion in August, which was 0.8 percent below July\’s revised rate of $98.8 billion.
At this point, you\’re likely asking, how did overall residential construction spending grow while spending on the construction of single- and multi-family housing declined? The answer: home remodeling and renovation projects, which are counted in the overall figure, likely drove the increase in overall residential spending.
As for the declines in spending on new single- and multi-family construction, most housing watchers attributed the declines to continuing high materials costs and labor shortages, which stymied progress on building projects.
Personal Incomes and Spending
Personal incomes grew $35.5 billion, or 0.2 percent, in August, according to last week\’s report from the Bureau of Economic Analysis. Disposable personal income (income after taxes) increased by $18.9 billion, or 0.1 percent.
At the same time, personal consumption expenditures (PCE) rose $130.5 billion, or 0.8 percent, in August. The PCE price index increased 0.4 percent in August, and the price index excluding the volatile food and energy segments grew 0.3 percent.
The increases in the price indexes are important to watch as those are the inflation metrics the Federal Reserve monitors when setting interest rates. What\’s driving the inflation? Continued supply-side cost increases due to Covid-19, according to comments made by Federal Reserve Chair Jerome Powell last week.
“It is frustrating to acknowledge that getting people vaccinated and getting Delta under control, 18 months later, still remains the most important economic policy that we have,” Mr. Powell said. “It is also frustrating to see the bottlenecks and supply chain problems not getting better – in fact, at the margin, apparently getting a little bit worse.
“We see that continuing into next year, probably, and holding inflation up longer than we had thought,” Powell added.
Initial Jobless Claims
In employment news, first-time claims for unemployment benefits filed by recently unemployed Americans during the week ending September 25th grew to 362,000, a gain of 11,000 claims from the previous week\’s total of 351,000, the Employment and Training Administration reported last week.
This was considerably higher than economists\’ expectations of a drop in initial jobless claims to 335,000.
The four-week moving average, which is considered a more stable measure of jobless claims, rose to 340,000, which was 4,250 claims above the preceding week\’s average of 335,750 claims.
This week, we can expect:
Monday – Factory orders for August from the Census Bureau.
Tuesday – Trade deficit for August from the Bureau of Economic Analysis.
Thursday – Initial jobless claims for last week from the Employment and Training Administration; consumer credit for August from the Federal Reserve.
Friday – Payrolls, unemployment rate and hourly earnings for September from the Bureau of Labor Statistics.
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