I gleaned some great news for housing today. Sure, Construction Spending data was not so hot (for June), but the weakness was all due to public sector spending. Also, recent indications about the summer are strong for housing. Furthermore, data gleaned from the manufacturing sector implies significant demand for construction materials and supplies.
Let's start with what reads poorly at the headline. Construction Spending was reported today and the data did not look good. But, it's important to note that the data was for the month of June. Recent indications about July and August are stronger, as implied by the significant increase in the Pending Home Sales Index, which I just reported on - see that here. As a result, sales of existing homes should show increases as reported through the summer months.
Construction Spending slipped, though, by 1.3% in June from May. The year-to-year pace of spending slipped as well, to 1.6% in June, from 3.8% in May (revised from 4.5%). If not for yesterday's pending home sales data, this news might have proved disastrous for housing stocks.
|SPDR S&P 500 (NYSE: SPY)||+0.2%|
|SPDR S&P Homebuilders (NYSE: XHB)||+0.9%|
|ProShares Ultra Homebuilders & Supplies (NYSE: HBU)||-1.0%|
|PulteGroup (NYSE: PHM)||+2.0%|
|D.R. Horton (NYSE: DHI)||+1.2%|
|K.B. Home (NYSE: KBH)||+2.1%|
|Toll Brothers (NYSE: TOL)||+2.3%|
|Lennar (NYSE: LEN)||+1.8%|
|Home Depot (NYSE: HD)||+0.2%|
|Loews (NYSE: L)||+1.0|
Don't sweat the data at all though. Through the first six months of the year, construction spending was still up 4.8% against the same period in 2016. And, all of the trouble was due to a decrease in public sector spending. Public construction was down 5.4% in June on a seasonally adjusted basis. Eventually, the Administration's infrastructure promises should come through here, and help public sector spending drive this data higher, we hope.
Real estate enthusiasts are more interested in how the private sector faired. Spending on private construction slipped just 0.1% from May. Residential construction edged lower by 0.2%, while nonresidential construction inched 0.1% down from May. So that's not so bad.
Furthermore, in my study of the ISM Manufacturing Index for June, I noted exceptional strength. The data implied strong demand for housing construction materials and supplies.
In conclusion, let's not jump to conclusions because of a headline. All indications are that the housing sector is doing just fine, and actually strengthening. The biggest issues for housing are all due to burgeoning demand, and include: an inventory shortage, a labor shortage and rising prices of supplies and materials. That's a good thing. For more of my work on real estate, follow the column here at Seeking Alpha.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.