What does the future foretell? Everyone wants to know what will happen next year now that the Fed is on hold and inflation continues to decline.
I believe the construction industry is telling us the economy will continue to expand next year, despite the Fed’s intransigence on dropping interest rates. Plunging bond yields are signaling inflation will continue to decline, so why wouldn’t the Fed follow?
Construction spending rose in October for the 10th month in a row, largely because of work on commercial buildings and government-funded public projects.
Spending on construction increased 0.6 percent in October to just over a $2 billion annual rate, up 11 percent annually, the Commerce Department reported Friday, and per the FRED graph on construction spending.
Much of it comes from the ‘new’ New Deal bipartisan Bidenomics bills that are modernizing the American economy as well as fighting climate change.
And inflation as measured by the Fed’s preferred PCE price index, or personal consumption expenditures price index, was unchanged in November. It was held down in part by a decline in oil prices. The increase in inflation over the past year decelerated to 3.0 percent from 3.4 percent in the prior month and 6.4 percent one year ago. That’s the lowest level since February 2021.
And construction spending could even accelerate as interest rates drop further. Bonds in particular have rallied, as the 10-year Treasury note yield declined more than 0.5 percent in November igniting a huge bond rally after briefly touching 5 percent.
What is being constructed? Everything from roads (public) to commercial properties (private). Private construction spending was almost $1.5 billion of the total.
In October, the estimated seasonally adjusted annual rate of public construction spending was $447.8 billion, 0.2 percent (±2.0 percent) above the revised September estimate of $446.9 billion. Public construction is building for the future that only governments can do.
Educational construction was at a seasonally adjusted annual rate of $97.2 billion, 0.4 percent (±2.3 percent) above the revised September estimate of $96.7 billion.
Highway construction was at a seasonally adjusted annual rate of $132.0 billion, 0.3 percent (±4.8 percent) below the revised September estimate of $132.4 billion.
Since Biden took office, employers have created 14 million jobs, and the unemployment rate has been hovering around a 50-year-low for months, said the NYTimes Ross Serkin.
The president has also been talking up signature economic accomplishments like the Infrastructure Investment and Jobs Act, which he argues have helped rebuild rural America and invigorated the economy.
“Bidenomics is just another way of saying the American dream,” he said in a speech. It’s not a stretch. The economy grew last quarter at 5.2 percent, belying a global slowdown.
President Biden will convene the first meeting of his supply-chain resilience council, using the event to announce 30 actions to improve access to medicine and needed economic data and other programs tied to the production and shipment of goods.
“We’re determined to keep working to bring down prices for American consumers and ensure the resilience of our supply chains for the future,” said Lael Brainard, director of the White House National Economic Council and a co-chair of the new supply chain council.
Working to increase the supply of everything is the best way to bring down prices, and inflation.
Harlan Green © 2023
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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