Construction Spending Keeps Rising As Manufacturing Falls

US construction spending rose in September to the highest level in seven-and-a-half years as both private and public outlays increased, suggesting a modest upward revision to the third-quarter GDP growth estimate.

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Construction spending advanced 0.6% to $1.09 trillion, the highest level since March 2008, after an unrevised 0.7% increase in August, the Commerce Department reported on Monday.

Construction Spending Increase

Construction spending has increased every month this year, a trend we have documented, and the latest gain suggested the economy remained on firmer ground despite some slowing in consumer spending and persistent weakness in manufacturing.

Economists polled by Reuters had forecast construction spending rising 0.5% in September. Construction outlays were up 14.1% compared to September of last year.

September’s increase is slightly above the gain the government had estimated in its advance third-quarter gross domestic product estimate published last week.

The government reported the economy grew at a 1.5% annual pace in the third quarter, hurt by business efforts to reduce an inventory glut and continued spending cuts by energy firms. A strong dollar also hurt the economy.

Manufacturing Falters

Unfortunately, as construction spending was rising, manufacturing still fell, as activity hit a two-and-half-year low. While it would certainly be a positive to see manufacturing activity join construction in the recovery, it accounts for only 12% of the economy and analysts said it was unlikely to influence the Federal Reserve‘s decision whether to raise interest rates at the end of the year.

The Institute for Supply Management said its national manufacturing index slipped to 50.1 this month, the lowest level since May 2013

Manufacturers continued to cite the dollar’s strength and low oil prices as headwinds. The new orders sub-index rose to 52.9 last month from 50.1 in September, but export orders continued to contract. There were modest improvements in supplier deliveries and backlog orders.

Low Prices Fuel Growth

While construction spending continues to grow, much of its growth continues to be fueled by low prices for metals such as steel, copper and aluminum. It is still a buyers’ market for construction estimators and other procurement professionals in the construction industry.

Seven manufacturing industries, including furniture and fabricated metal products, reported growth in October. Nine industries, including apparel, primary metals, petroleum and coal products, electrical equipment, appliances and components, machinery and transportation equipment, reported contraction.

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The dollar has gained 16.8% against the currencies of the main trading partners of the US since June 2014. The picture is further clouded in many countries by falling values against the US dollar. In some commodities, currencies are shielding producers from the worst effects of falling global prices.

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