The U.S. Census Bureau’s November 2015 construction spending data release came with the following unexpected
surprise: “In the November 2015 press release, monthly and annual estimates for
private residential, total private, total residential and total construction spending
for January 2005 through October 2015 have been revised to correct a processing
error in the tabulation of data on private residential improvement spending.”
A number of analysts were quick to claim the revision will
have a sizable impact on GDP. E.g., MarketWatch.com:
“‘The upward revision to spending in 2014 is enough to raise growth that year
from 2.4% to 2.6%-2.7%,’ wrote IHS Global Insight US economist Patrick Newport
in a research note. ‘The revisions are likely to boost growth for 2015 as well.’”
Not everyone agreed, however. SitkaPacific Capital
Management’s Mike
Shedlock was one analyst who begged to differ with the more optimistic
view. “The question is not whether 2015 GDP will rise vs. previous estimates,”
Shedlock wrote, “but rather by how much it will sink.”
Given the disparity of opinions, we decided to do a bit of
exploring on our own. The following graph shows the magnitude of the revisions
to the historical data:
Click image for larger view
The revisions prior to 2014 are relatively minor, but the
changes to 2014 and 2015 are far more substantial and -- at first blush, at
least -- seem to support the idea of stronger GDP growth. It is key to
remember, however, that GDP growth is driven by quarter-over-quarter or
year-over-year (YoY) rates of change. Converting the data to a YoY percentage
change basis provides a more nuanced picture:
Click image for larger view
The above graph strongly suggests that GDP growth for 2014
could indeed be revised higher. The outcome for 2015 is much cloudier, however;
upward revisions early in 2015 appear to be nearly offset by negative revisions
later in the year. The following table supports this observation:
Click image for larger view
As one can see, 2014 spending was revised higher by $30.4
billion. When combined with the $11.9 billion reduction for 2013, the
change to 2014 GDP growth will almost certainly be noticeable. The $36.6
billion revision shown for January through October 2015, on the other hand, did
little more than keep 2015 in the same position relative to 2014 that it had been
in prior to the revision.
In summary, then, the answer to the question in the title of
this post is: “Yes (for 2014) and probably not (for 2015).”
The foregoing comments represent the general economic views and
analysis of Delphi Advisors, and are provided solely for the purpose of
information, instruction and discourse. They do not constitute a solicitation
or recommendation regarding any investment.
