Construction spending is an underestimated indicator that most people do not think about when it comes to a nation’s economy. The data from construction spending gives an insight of the economic growth of the United States as measured from the GDP.
What is it?
Construction spending measures the spending of new projects such as roads, highways, housing, and other infrastructure. Construction-related expenses such as labor, materials, and any engineering work are what encompasses construction spending. The Value of Construction Put in Place Survey (VIP) is released monthly by the Department of Commerce’s Census Bureau. Residential and non-residential construction in the private sector along with state and federal construction spending are included in the monthly VIP.
Importance
Construction spending data gives insight to the economic growth of the United States through GDP. As GDP increases, so does construction spending due to an increase in business and consumer spending. Construction spending would decline when the economy is slowing or experiences negative growth. Residential construction accounts for nearly 50 percent of total construction spending in the United States. Tracking new home constructions is a good measure of the strength of the housing market, as it rises when consumers feel optimistic about their jobs and the economic conditions.
Commercial construction is through commercial businesses, where they spend hundreds of billions of dollars a year. Commercial construction adds jobs for contractors, software and technology firms, and the banking industry, which usually finances the construction.
The federal government can allocate money towards the government’s construction spending. In late 2021, President Biden signed a $1.2 trillion infrastructure bill, where $550 billion of that will be allocated to investments for roads, bridges, highways, and mass transportation from 2022 to 2026.
Numbers
In the July 3 release, construction spending was $1.925 trillion in May, which represents a 0.9 percent change compared to April and a 2.4 percent change compared to May of 2022. Private construction was $1.513 trillion while public construction was $412 billion.
Of the total private construction, $857.438 billion was constructed for residential purposes. $655.754 billion was constructed for non-residential purposes, with manufacturing being the leader with $193.883 billion. Of the total public construction, non-residential construction was $402.181 billion, with highways and streets at $124.615 billion.
First State Investment Advisors has over 50 years of experience examining construction spending patterns. For a free consultation, call us today at (918) 492-1361.
This overview is for informational purposes only and is not a recommendation. It should not be the sole deciding factor in making an investment. Investing is a risk, and, as with all risks, a positive return is not guaranteed. Past performance does not indicate future results.