US Q3 GDP tracking 2.6% after July construction spending

Total construction spending grew 0.7% m/m in July, above forecast (0.4%) and consensus expectations (0.6%), as unexpectedly strong private nonresidential activity boosted total construction outlays. In addition to better-than-expected July data, June construction spending data were revised up to 0.7% m/m (initial: 0.1%) on better estimates of private residential (0.9% m/m, initial: 0.4%) and nonresidential (-0.7% m/m, previous: -1.3%) activity.

In July, the gain in total construction spending was driven by the private sector (1.3% m/m, previous: 0.1%). Public sector spending was down for the month (-1.0% m/m, previous: 2.2%) on less nonresidential activity (-1.0% m/m). On the private side, both the residential and nonresidential sectors reported strong activity at the beginning of the third quarter.

 Private single family residential construction (2.1% m/m, previous: 0.5%) grew at the fastest rate since last December, while the multi-family sector (-2.2% m/m, previous: 5.2%) saw some payback from the June surge. Private nonresidential activity was up 1.5% on the month (previous: -0.7%) in July; gains in the non-energy portion of this sector should serve to offset another sequential contraction in energy drilling in Q3.

"Overall, we view the July construction spending report as consistent with further gains in housing activity and a modest pickup in business investment in structures.The upward revisions to private residential and nonresidential construction spending in June imply a bit more investment in these categories than was currently estimated for Q2. This boosted our Q2 GDP tracking estimate by one-tenth to 3.8%. In July, data on residential investment were broadly in line with our estimates. Private nonresidential construction spending exceeded our expectations on the month, however, and pushed our Q3 GDP tracking estimate up one-tenth to 2.6%", says Barclays.