What is Construction Spending?

A key measurement for determining the strength of economic activity in industrialized countries is construction spending. In the United States, this indicator calculates the level of expenditures on residential and non-residential new construction activities that are completed, or in some cases, expected to be finished. Expenditures made in the private sector and money spent on projects performed at the state and federal levels are computed to determine the amount of construction spending for a specific period. Construction spending is a major component of the gross domestic product or GDP.

The GDP calculates the economic production of a nation by placing a market value on all final goods and services produced within the country during a specified time. Commercial and government construction spending comprise a significant amount of the annual investment expenditures made in the US. The spending generated in the construction industry has a direct affect on businesses in the areas of finance, home furnishings, appliances, and other trades. Economic vitality in the construction sector typically translates into higher sales in these businesses. This association makes construction spending a key sentiment indicator for determining the overall health of the economy.

Each month, the US Department of Commerce’s Census Bureau releases a construction spending report that reveals the actual numbers and inflation-adjusted values. This report is a compilation of data derived from public and private sources. A variety of methods are used to create the monthly report. For private residential buildings consisting of new single family homes, the data is obtained from the U.S. Census Bureau’s Survey of Construction.

This information focuses on housing starts and sales. This category also includes rental units, homes that are for sale, houses built by the owner, and houses built on contract. There is also a sampling of residential multifamily projects that are two units and up. This component of the report includes information on improvements made to owner-occupied properties. The data is taken from a review conducted by the US Bureau of Labor Statistics.

In the field of private nonresidential construction, an analysis called the Progress Reporting Survey discloses the cost of commercial construction performed in the United States. The figures are provided by McGraw-Hill Construction and are based on developments worth $75,000 US Dollars (USD) or more. It includes statistics on projects that are not documented by the normal building permit process or contained within other McGraw-Hill Construction data.

New farm nonresidential information is also included. This module of the construction spending report is projected from information provided by the US Department of Agriculture. The monthly values detailed in this account are extrapolated from annual numbers.

Projects completed by public-owned utility companies that are regulated by the government are the last group incorporated into the construction spending report. This category includes construction developments completed by business organizations ranging from communication firms to oil companies. The data complied for this module is assembled from regulatory agencies, private companies, and direct reports of construction activities in progress.

Government construction spending is collected from state and local municipalities and federal construction activities. The statistics for this group is obtained from the private nonresidential numbers provided by McGraw-Hill Construction. The sampling of construction spending in this area is broken down according to construction type. Infrastructure expenditures include highway, sewage, and water facilities. Data is also reported on residential housing, office buildings, and educational facilities built with public funds.