Morning Report – Construction Spending is coming back 12/2/14

Stocks are higher this morning on no real news. Bonds and MBS are giving back some of Friday’s big gain.

Construction Spending rose 1.1% in October, and September’s number was revised upward from – .4% to – .1%.  Private residential construction rose 1.3%. Federal construction spending rose 19.3% and overall public construction increased 2.3%. Construction spending is still 20% off its peak level in 2006. 3Q GDP was boosted by a 9.9% increase in government spending, and we see that the Federal Government increased construction spending by 19%. Perhaps someone was trying to influence the midterms by throwing a little money around…

Chart: Construction Spending 2000 – Present

Construction Spending as a percent of GDP:

As you can see from the two charts above, we construction spending has been heavily depressed since the bubble burst 8 years ago. This represents pent-up demand which will drive the economy going forward. If oil prices remain low, 2015 could be a good year and the economy might be able to weather higher interest rates, although I don’t think the Fed raises rates by more than a symbolic amount until wage inflation starts. Given the bid that is underneath worldwide bonds, the Fed could raise short term interest rates and longer-term rates might not even move all that much.

Home Prices increased 6.1% year-over-year in October, according to CoreLogic. They remain 12.4% below their April 2006 peak.

Zillow is predicting Millennials will be the biggest home buying group in 2015 and rent inflation will outstrip home price appreciation. We are already seeing the home price indices reflect higher growth at the lower price points than the higher price points.

While Black Friday sales were tepid for the most part, Cyber Monday sales were brisk, up 8.5%. Consumer confidence indices are pushing through post-bubble highs, and lower gas prices should help improve consumer spending.

6 Responses

  1. BTW, praying the oil prices remain low! I love cheap energy. Makes the world go ’round.

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  2. Scott, there is an analysis of Ashton Carter as an authority on weapons procurement cost in the WSJ that I cannot see. Can you help?

    The WaPo says Carter understands cybersecurity issues. Because this Admin doesn’t want any policy help from DoD, AFAIK, I think the best bet is a guy who knows costs and cybersecurity – a technogeek, if you will. My guess is that he will be permitted to suggest hardening cybersecurity and ways to lower procurement costs but not have a seat at the table with the West Wingers on FP.

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    • Mark, just e-mailed you the front page article from the WSJ. If that isn’t what you had in mind, let me know and I will look for something else.

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  3. @McWing: “Obviously better than before.”

    Depends on who you are. If you had a previous written out or impossible to cover pre-existing condition (or delayed coverage) you might come out ahead, particularly if you switch jobs a lot and get your insurance through your employer and have a pre-existing condition. Pre-existing conditions are often very expensive, and that extra 42% can be way cheaper than paying for your own medical care relative to your pre-existing condition. I assume other people come out ahead, too, in some cases, but I can’t think of an example.

    Mine came out a wash. I’m paying like $4 more per pay period, but it would have dropped $30 or so per pay period if not for Obamacare (with the school merger, the size of our risk pool more than doubled; but Obamacare happened at the same time, so my premiums stayed about the same while everybody who had worked for the larger system saw their premiums go up about $40).

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