Construction spending climbed 1% month-over-month in November, and was up 5.9% from a year ago.
While the numbers may look good, Ian Shepherdson of Pantheon Macroeconomics argues that they’re horribly unreliable.
First, he points out that the net revision for November and October was a massive +1.8%. Furthermore September’s figures were revised up to 1.4% from 0.3%. Within that September report, residential spending was revised up to 5.4% from 1.7%.
These constant massive revisions are why he thinks the data is “published far too early and are therefore deeply unreliable.”
Shepherdson also points out that while the headline number looks good, the key components of the index are slowing in Q4 as compared to Q3. As for the other slowing components:
“For what it’s worth, the new data show private spending up 2.2% in Nov, split between res and non-res, but public spending – mostly state and local – fell 1.8%, after a 3.1% Oct leap. The latter looks set to rise about 3% annualized in Q4, after an 11.9% Q3 increase, so will make a much smaller contribution to GDP growth. Private housing gains have also slowed sharply, with a less dramatic softening in non-res.”
Economists expect home price growth to slow in the coming year. They are also closely watching the impact that the Fed’s taper, of its monthly asset purchase program, could have on mortgage rates.
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