Construction spending rose to the highest level in more than seven years in July and we might be seeing this sector taking its rightful place as part of the economic recovery engine. Construction spending plays a major role in recovery as it stimulates other sectors from lumber to new furniture purchasing and is a key play in helping to underpin economic growth. The report comes in as we face turbulence outside American borders.
Total construction spending climbed 0.7 percent from the prior month to a seasonally adjusted annual rate of $1.083 trillion and was the highest level since May 2008.
Private building led the way, with both residential and nonresidential construction hitting new post-recession highs. State and local government spending dropped in July, but only after posting solid gains during the previous four months.
The overall impression from the past few months is that the construction sector overall is the strongest part of the economy, with spending up at a remarkable 26 percent annualized rate in the three months to July.
Construction spending data is, however volatile and often heavily revised. Low oil prices, meanwhile, may hinder investment in structures used to extract natural resources from the ground. But the overall construction trend has been building through the course of the year and the most recent updates were broadly positive for second-quarter growth. Actual spending during the first seven months of the year was up 9.3 percent from the same period in 2014.
The latest construction data stand in contrast to August’s manufacturing figures, which showed that sector expanding, but at a slower pace. Other components of the economy have been broadly positive, with second-quarter growth revised to show a healthy rebound and early readings for the third quarter, suggesting a degree of momentum.
Some analysts have revised their second-quarter gross domestic product growth estimate to a seasonally adjusted annual rate of 3.8 percent from 3.7 percent after Tuesday’s construction data, while most are forecasting growth at a 2.2 percent pace in the third quarter.
While the U.S. economy appears to be holding its own, growth in China and elsewhere appears to be on shakier ground.
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