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Giddy Reaction To July Construction Misses Key Fact

I noted some giddiness in my Twitter feed this morning after the record number for July construction spending hit the tape. So here’s my giddy reaction.

Construction Spending Boom

Construction Spending Boom

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It’s a boom! It’s a breakout! To da moon! Oops. Adjusted for inflation, the number is a little less robust than the cheerleaders would have it, although yes, the trend is suddenly very strong, with 2 straight 10% year over year gains in June and July, coming off zero growth at the end of last year.

But wait, what’s this? The total nominal gain from June to July was $1.4 billion, a gain of just over 1.4%. Strong! But $829 million of that, 59% of the gain, was due to public spending on streets and highways. The gain in private construction was a more modest $690 million, or 1%. That’s still a good number, and year to year ex highway construction, it’s up 13%, a huge gain. So the trend is positive, but considering it’s only back to where it was 13-14 years ago, everything is relative.

The question in my mind is whether this represents developers rushing to get started before the interest cost on construction loans goes up. If that’s the case, this will be the climactic last speculative gasp before the trend rolls over, regardless of whether rates go up or not. It will be interesting to see what August and September numbers bring. I suspect that they’ll be a lot softer on the heels of this surge especially if the bear market in stocks digs in.

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Lee Adler

I’ve been publishing The Wall Street Examiner and its predecessor since October 2000. I also publish LiquidityTrader.com, and was lead analyst for Sure Money Investor, of blessed memory. I developed David Stockman's Contra Corner for Mr. Stockman. I’ve had a wide variety of finance related jobs since 1972, including a stint on Wall Street in both sales, analytical, and trading capacities. Prior to starting the Wall Street Examiner I was a commercial real estate appraiser in Florida for 15 years. I was considered an expert in the analysis of failed properties that ended up in the hands of bank REO divisions, the FDIC, and the RTC. Remember those guys? I also worked in the residential mortgage and real estate businesses in parts of the 1970s and 80s. I have been charting stocks and markets and doing analytical work since I was a teenager. I'm not some Ivory Tower academic, Wall Street guy. My perspective comes from having my boots on the ground and in the trenches, as a real estate broker, mortgage broker, trader, account rep, and analyst. I've watched most of the games these Wall Street wiseguys play from right up close. I know the drill from my 55 years of paying attention. And I'm happy to share that experience with you, right here. 

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