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

Date	Total Construction		Total Residential		Total Private Construction		Private Residential
	Previously Published	Revised January 4, 2016	Previously Published	Revised January 4, 2016	Previously Published	Revised January 4, 2016	Previously Published	Revised January 4, 2016
Oct-15	1,107,381	1,127,040	405,604	433,313	802,435	829,729	399,036	426,784
Sep-15	1,096,637	1,123,892	401,658	432,381	795,841	824,201	395,021	425,703
Aug-15	1,089,801	1,121,907	395,401	427,507	788,698	820,804	388,636	420,742
Jul-15	1,080,358	1,114,716	388,681	423,039	781,249	815,607	382,063	416,421
Jun-15	1,074,314	1,113,424	382,553	421,663	773,489	812,599	376,055	415,165
May-15	1,068,424	1,107,569	379,735	418,881	776,452	815,598	373,063	412,208
Apr-15	1,044,641	1,084,961	373,346	413,666	757,209	797,529	366,837	407,157
Mar-15	1,006,351	1,052,899	363,879	410,428	729,713	776,261	357,512	404,061
Feb-15	993,465	1,037,527	366,651	410,713	720,819	764,880	360,575	404,636
Jan-15	990,051	1,033,261	364,833	408,043	716,185	759,396	358,940	402,151
Dec-14	989,118	1,031,635	360,323	402,840	707,551	750,069	354,834	397,351
Nov-14	976,888	1,016,054	352,509	391,674	699,344	738,510	347,159	386,325
Oct-14	979,573	1,015,977	347,242	383,645	692,127	728,530	342,114	378,517
Sep-14	959,182	992,349	342,529	375,695	684,862	718,028	337,109	370,275
Aug-14	955,017	986,876	335,035	366,894	676,325	708,184	330,001	361,860
Jul-14	952,468	984,990	334,543	367,065	673,787	706,309	329,531	362,054
Jun-14	950,282	983,906	334,459	368,083	674,049	707,673	329,510	363,134
May-14	957,641	990,737	338,268	371,364	681,986	715,082	333,522	366,618
Apr-14	964,738	992,914	345,879	374,054	691,365	719,540	341,109	369,284
Mar-14	964,995	989,496	347,470	371,970	696,050	720,551	342,607	367,107
Feb-14	968,303	985,280	351,366	368,343	704,219	721,196	346,436	363,413
Jan-14	961,002	973,655	354,047	366,700	696,718	709,370	349,142	361,795

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

Date	Total Construction Spending
	Previous M/M Increase	Revised M/M Increase	Difference
Oct-15	0.98%	0.28%	-0.70%
Sep-15	0.63%	0.18%	-0.45%
Aug-15	0.87%	0.65%	-0.23%
Jul-15	0.56%	0.12%	-0.45%
Jun-15	0.55%	0.53%	-0.02%
May-15	2.28%	2.08%	-0.19%
Apr-15	3.80%	3.05%	-0.76%
Mar-15	1.30%	1.48%	0.18%
Feb-15	0.34%	0.41%	0.07%
Jan-15	0.09%	0.16%	0.06%
Dec-14	1.25%	1.53%	0.28%
Nov-14	-0.27%	0.01%	0.28%
Oct-14	2.13%	2.38%	0.26%
Sep-14	0.44%	0.55%	0.12%
Aug-14	0.27%	0.19%	-0.08%
Jul-14	0.23%	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-14	0.76%	1.19%	0.43%
Jan-14	0.11%	1.21%	1.10%

Total Residential Construction Spending vs. Previous Reports

Date	Total Residential Construction Spending
	Previous M/M Increase	Revised M/M Increase	Difference
Oct-15	0.98%	0.22%	-0.77%
Sep-15	1.58%	1.14%	-0.44%
Aug-15	1.73%	1.06%	-0.67%
Jul-15	1.60%	0.33%	-1.28%
Jun-15	0.74%	0.66%	-0.08%
May-15	1.71%	1.26%	-0.45%
Apr-15	2.60%	0.79%	-1.81%
Mar-15	-0.76%	-0.07%	0.69%
Feb-15	0.50%	0.65%	0.16%
Jan-15	1.25%	1.29%	0.04%
Dec-14	2.22%	2.85%	0.63%
Nov-14	1.52%	2.09%	0.58%
Oct-14	1.38%	2.12%	0.74%
Sep-14	2.24%	2.40%	0.16%
Aug-14	0.15%	-0.05%	-0.19%
Jul-14	0.03%	-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