Real Private Residential Investment Sleight of Hand

Back when the Q3 2009 GDP report was first released business media cheered the arrival of the first gain in real private residential investment seen in many years and further basked in the glow of what appeared to be exceptional strength in the component which showed a lofty 23.4% annualized percent gain (later revised down to the still notable 18.86%).

I took exception with the figure on multiple levels as it was clear to me that this was an errant data-point in need of revision, juiced by government stimulus and seriously in need of some context for its proper interpretation.

Today’s advance release of the Q1 2010 report provides substantial evidence that last year’s increase in fixed residential investment was but a blip more or less mirroring other housing trends that were driven by the government tax gimmick.

Of course, the new decline to this component has been largely ignored by business media.

It wouldn’t be surprising if this series lifts going into the second quarter again mirroring the activity occurring as a result of the extended tax credit but in all likeliness this dynamic is merely temporary with the true “organic” trend remaining biased to decline.

Construction Spending: December 2008

Today, the U.S. Census Bureau released their December read of construction spending again demonstrating the significant extent to which private residential construction is contracting particularly for single family structures while non-residential spending continues to show the telltale signs of contraction.

With the tremendous weakening trend continuing, total residential construction spending fell 22.88% as compared to December 2007 and 52.81% from the peak set in March 2006.

Worse off though was private single family residential construction spending which declined 43.14% as compared to December 2007 and a truly grotesque 69.86% from the peak set in February 2006.

Non-residential construction spending, currently accounting for just under half of all private construction spending, has been expanding at a slower rate in recent months with December showing a 8.92% increase as compared to December 2007 but posting the fifth monthly decline in six months.

As was noted in prior posts, commercial real estate (CRE) appears to be coming under some pressure with reports of increasing vacancy rates and falling prices and now a back-to-back monthly decline in spending.

Keep your eye on the last two charts in the months to come for a clearer indication of a pullback.

The following charts (click for larger versions) show private residential construction spending, private residential single family construction spending and private non-residential construction spending broken out and plotted since 1993 along with the year-over-year and peak percent change to each since 1994 and 2000 – 2005.

Construction Spending: October 2008

Today, the U.S. Census Bureau released their October read of construction spending again demonstrating the significant extent to which private residential construction is contracting particularly for single family structures while non-residential spending appear to have begun to show the telltale signs of contraction.

With the tremendous weakening trend continuing, total residential construction spending fell 24.20% as compared to October 2007 and 49.91% from the peak set in March 2006.

Worse off though was private single family residential construction spending which declined 41.02% as compared to October 2007 and a truly grotesque 65.06% from the peak set in February 2006.

Non-residential construction spending, currently accounting for just under half of all private construction spending, has been expanding at a slower rate in recent months with October showing a 9.09% increase as compared to October 2007.

As was noted in prior posts, commercial real estate (CRE) appears to be coming under some pressure with reports of increasing vacancy rates and falling prices and now a back-to-back monthly decline in spending.

Keep your eye on the last two charts in the months to come for a clearer indication of a pullback.

The following charts (click for larger versions) show private residential construction spending, private residential single family construction spending and private non-residential construction spending broken out and plotted since 1993 along with the year-over-year and peak percent change to each since 1994 and 2000 – 2005.

Construction Spending: June 2008

Today, the U.S. Census Bureau released their June read of construction spending again demonstrating the significant extent to which private residential construction is contracting particularly for single family structures while non-residential spending continued to grow essentially in-line with its recent expansion.

With the tremendous weakening trend continuing, total residential construction spending fell 26.70% as compared to June 2007 and 44.93% from the peak set in March 2006.

Worse off though was private single family residential construction spending which declined 40.42% as compared to June 2007 and a truly grotesque 59.01% from the peak set in February 2006.

Non-residential construction spending, currently accounting for just under half of all private construction spending, remains the only pillar of strength gaining 15.02% as compared to June 2007.

As was noted in prior posts, commercial real estate (CRE) appears to be coming under some pressure with increasing vacancy rates and falling prices.

Keep your eye on the last chart in the months to come for a clear indication of a pullback.

The following charts (click for larger versions) show private residential construction spending, private residential single family construction spending and private non-residential construction spending broken out and plotted since 1993 along with the year-over-year and peak percent change to each since 1994 and 2000 – 2005.