Construction Spending Rises For Ninth Straight Month

This is not what tighter financial conditions are expected to look like.

Construction spending in the U.S. rose in September, the ninth month in a row in which U.S. businesses and government increased outlays for construction. Rising construction spending is both an indicator and a driver of increased economic activity.

Construction spending was up 0.4 percent in September, to nearly $2 trillion, data from the Commerce Department showed Wednesday.

This was in line with Wall Street’s expectations. Compared with a year ago, construction spending is up 8.7 percent.

Government spending on construction has soared this year. It rose 0.4 percent from the revised August figure and is up 15.5 percent compared with a year ago. The August figure was revised up to show a one percent increase, twice the original 0.5 percent increase reported in the first estimate.

Spending on educational facilities, one of the largest categories of public construction spending, rose 1.9 percent in September and is up 16.5 percent from a year ago. Spending on streets and highways, the largest category, fell 0.2 percent but is up 10.4 percent from a year ago.

Spending on power, which includes both traditional energy generation and so-called green projects, rose 4.6 percent and is up 69.1 percent from a year ago.

Spending on conservation and and development projects rose 1.1 percent in the month and is up 28.1 percent from a year ago.

Private construction spending rose 0.4 percent and is up 6.9 percent from a year ago. Spending on new single family home construction rose 0.6 percent but remains 2.2 percent below the year ago level.

Nonresidential private construction ticked up 0.1 percent in September and is up 21.3 percent from a year ago. Spending on manufacturing facilities has soared and is now the biggest category of nonresidential private construction at a seasonally adjusted annual rate of $198 billion. This fell by 0.4 percent in September but is up 62.5 percent, largely reflecting subsidies contained in recent legislation such as the Inflation Reduction Act.

The Federal Reserve has been raising interest rates in an effort to slow the economy by tightening financial conditions. The boom in construction spending, however, suggests that the Fed’s efforts are having only a limited effect, in part because higher borrowing costs are being offset by government spending and subsidies for private outlays.

Non-residential spending is at a new record high, as is public construction spending. Private residential construction spending is 10 percent below the recent peak.