Post-Holiday Letdown in Economic Data

Construction spending fell 0.8% in October, reinforcing our forecast for a slowdown in the fourth quarter. Upward revisions to September and August will add slightly to growth over the summer. Both private and public spending fell during October, with private construction posting the lowest spending level in three years. Total construction was up 1.1% on a year-over-year basis; gains in the public sector are the reason why it is up at all.

Private nonresidential construction spending posted the weakest reading since December of 2017; that was dragged down by all categories except for religious and health care building construction. Nonresidential investment, a key component of GDP growth, has contracted for a second straight quarter.

Private residential construction spending, which had gained ground in the late summer and early fall, fell slightly in October due to a decline in multifamily construction spending. Single-family spending continues to grow, with the recent rise in permits and mortgage applications likely to support construction into the end of the year.

Public construction spending, most of which is done at the state and local levels, declined slightly in October but gained 10.2% compared to last year. Most of the growth occurred in education infrastructure spending; other categories, except for health care infrastructure spending, were up on a yearly basis. Increases in spending on highways and streets, as measured by the Federal Highway Administration, are due to increasing costs rather than the number of projects.

Separately, the Institute for Supply Management (ISM) manufacturing index remained in contractionary territory for the fourth month in a row for November. All components of the index, except for supplier deliveries, continued to contract. New tariffs on Argentina and Brazil, coupled with the administration’s stance on not reversing current tariffs on China, continue to strain the manufacturing industry’s margins and delay investment.

Bottom Line
Today’s data confirms our view the U.S. economy is slowing. The fourth quarter looks like it will come in close to 1.5%, more than one-half a percent weaker than the third quarter. The jury on the consumer is still out; storms during Thanksgiving week are further compressing the holiday season.

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