One of my consistent themes in the past few months has been how the housing market is priming the economy for strong growth in 2021 as soon as the pandemic is brought under control. In that vein, November construction spending surged, confirming what we have already been seeing in housing permits and starts.
First of all, here are both total and residential construction spending for the past 15+ years:
Note that in raw, non-inflation-adjusted terms, both are close to their all-time highs, and definitely at 10+ year highs.
Of the two, residential construction is more important because it is a more leading, indicator. Commercial and government construction, which is included in the total, relatively speaking lag.
Because permits have to be taken out before construction can begin, typically these lead to construction spending (although in fairness that really hasn’t been true in the past 2 years). Below I show the YoY% change in both, which helps take care of the fact that residential construction spending isn’t adjusted for inflation:
With the exception of the brief lockdown periods last March and April, residential construction spending is increasing at a pace equivalent to its best in the past 5 years, just as permits have done even better.