Diving Into the Revisions: Construction Spending Revised Lower 7 Consecutive Months! 2015 GDP Will Decline vs. Estimates: By How Much?

Understanding the Construction Revisions

Yesterday I commented Government "Processing Error" Sinks Housing Reports for Entire Year.

In that article, I stated 2015 GDP would be revised lower. Some disagree.  

For example, MarketWatch reports IHS Global Insight US economist Patrick Newport wrote in a research note "The upward revision to spending in 2014 is enough to raise growth that year from 2.4% to 2.6%-2.7%. The revisions are likely to boost growth for 2015 as well."

Let's investigate that claim with a look at the actual revised construction data as posted by the Census Bureau.

Note: Don't study this table too long. Instead, skip to the analysis and tables that follow.

Initially Reported vs. Revised - Seasonally Adjusted Data

DateTotal ConstructionTotal Residential Total Private ConstructionPrivate Residential
Previously PublishedRevised January 4, 2016Previously PublishedRevised January 4, 2016Previously PublishedRevised January 4, 2016Previously PublishedRevised January 4, 2016
Oct-151,107,3811,127,040405,604433,313802,435829,729399,036426,784
Sep-151,096,6371,123,892401,658432,381795,841824,201395,021425,703
Aug-151,089,8011,121,907395,401427,507788,698820,804388,636420,742
Jul-151,080,3581,114,716388,681423,039781,249815,607382,063416,421
Jun-151,074,3141,113,424382,553421,663773,489812,599376,055415,165
May-151,068,4241,107,569379,735418,881776,452815,598373,063412,208
Apr-151,044,6411,084,961373,346413,666757,209797,529366,837407,157
Mar-151,006,3511,052,899363,879410,428729,713776,261357,512404,061
Feb-15993,4651,037,527366,651410,713720,819764,880360,575404,636
Jan-15990,0511,033,261364,833408,043716,185759,396358,940402,151
Dec-14989,1181,031,635360,323402,840707,551750,069354,834397,351
Nov-14976,8881,016,054352,509391,674699,344738,510347,159386,325
Oct-14979,5731,015,977347,242383,645692,127728,530342,114378,517
Sep-14959,182992,349342,529375,695684,862718,028337,109370,275
Aug-14955,017986,876335,035366,894676,325708,184330,001361,860
Jul-14952,468984,990334,543367,065673,787706,309329,531362,054
Jun-14950,282983,906334,459368,083674,049707,673329,510363,134
May-14957,641990,737338,268371,364681,986715,082333,522366,618
Apr-14964,738992,914345,879374,054691,365719,540341,109369,284
Mar-14964,995989,496347,470371,970696,050720,551342,607367,107
Feb-14968,303985,280351,366368,343704,219721,196346,436363,413
Jan-14961,002973,655354,047366,700696,718709,370349,142361,795

Construction Spending Revised Lower 7 Consecutive Months!

For two years, construction spending went up vs. previous reported data. The net effect is GDP did indeed rise more than reported in 2014. The flip side is 2015 GDP will be lower than previous reported.

To understand why, we need to look at month over month differences as compared to previously reported numbers. Let's take a look.

Total Construction Spending vs. Previous Reports

DateTotal Construction Spending
Previous M/M IncreaseRevised M/M IncreaseDifference
Oct-150.98%0.28%-0.70%
Sep-150.63%0.18%-0.45%
Aug-150.87%0.65%-0.23%
Jul-150.56%0.12%-0.45%
Jun-150.55%0.53%-0.02%
May-152.28%2.08%-0.19%
Apr-153.80%3.05%-0.76%
Mar-151.30%1.48%0.18%
Feb-150.34%0.41%0.07%
Jan-150.09%0.16%0.06%
Dec-141.25%1.53%0.28%
Nov-14-0.27%0.01%0.28%
Oct-142.13%2.38%0.26%
Sep-140.44%0.55%0.12%
Aug-140.27%0.19%-0.08%
Jul-140.23%0.11%-0.12%
Jun-14-0.77%-0.69%0.08%
May-14-0.74%-0.22%0.52%
Apr-14-0.03%0.35%0.37%
Mar-14-0.34%0.43%0.77%
Feb-140.76%1.19%0.43%
Jan-140.11%1.21%1.10%

Total Residential Construction Spending vs. Previous Reports

DateTotal Residential Construction Spending
Previous M/M IncreaseRevised M/M IncreaseDifference
Oct-150.98%0.22%-0.77%
Sep-151.58%1.14%-0.44%
Aug-151.73%1.06%-0.67%
Jul-151.60%0.33%-1.28%
Jun-150.74%0.66%-0.08%
May-151.71%1.26%-0.45%
Apr-152.60%0.79%-1.81%
Mar-15-0.76%-0.07%0.69%
Feb-150.50%0.65%0.16%
Jan-151.25%1.29%0.04%
Dec-142.22%2.85%0.63%
Nov-141.52%2.09%0.58%
Oct-141.38%2.12%0.74%
Sep-142.24%2.40%0.16%
Aug-140.15%-0.05%-0.19%
Jul-140.03%-0.28%-0.30%
Jun-14-1.13%-0.88%0.24%
May-14-2.20%-0.72%1.48%
Apr-14-0.46%0.56%1.02%
Mar-14-1.11%0.98%2.09%
Feb-14-0.76%0.45%1.21%
Jan-14-1.25%1.69%2.94%

4th Quarter GDPNow Forecast



The GDPNow forecast for 4th quarter is now down to 0.7% from 1.3% on December 23.

2015 GDP Will Decline vs. Previous Estimates: How Much?

The question is not whether 2015 GDP will rise vs. previous estimates, but rather by how much it will sink.

Let's start with the GDPNow forecast.

Of the decline since December 23, 0.5 percentage points came following the Census Bureau's release on construction spending and the ISM report, both on January 4.

I do not know how to separate ISM from construction, but the net result was as follows:

  • Nonresidential structures declined by 0.10
  • Residential declined by 0.14
  • PCE declined by 0.13. 

That's a total of decline for those three components of 0.37 percentage points.

Part of that decline was based not only on revisions, but also on a month-over month decline in November construction spending of 0.4 percentage points.

If 3/4 of the decline in those components is due to construction spending, then I estimate third quarter GDP will be revised about .57 percentage points lower, second quarter .56 percentage points lower, and first quarter .21 percentage points higher.

Those are very crude calculations that may be wildly off the mark.

If accurate, first quarter GDP would be 0.0%, second quarter GDP 3.3%, third quarter GDP would be 1.4%. And if the Atlanta Fed model holds with no changes from here, fourth quarter GDP would be 0.7%.

In that case, 2015 GDP would be about 1.35% with the Fed hiking and GDP decelerating rapidly.

Mike "Mish" Shedlock