What Is Construction Spending?

Construction spending is an economic indicator that measures the amount of spending toward new construction. The U.S. Department of Commerce's Census Bureau releases the monthly Value of Construction Put in Place Survey, which looks at residential and non-residential construction in the private sector, and state and federal spending at the public level.

Key Takeaways

  • Construction spending is an economic indicator that measures monthly expenditures toward new construction.
  • This spending encompasses various construction-related expense such as labor, materials, and engineering work.
  • The Census Bureau provides this data via its VIP survey, and can be broken down by public and private construction, as well as for residential and nonresidential

Understanding Construction Spending

Construction spending figures tend to have only a minimal effect on markets, but these data are used to help predict upcoming Gross Domestic Product (GDP) numbers. They also are a good insight into the health of the housing and construction sectors, in conjunction with housing starts numbers.

The U.S. Census Bureau tracks monthly construction spending through the Value of Construction Put in Place (VIP) Survey, which provides monthly estimates of the total dollar value of construction work done in the U.S. The Bureau has conducted the survey for over 50 years; it covers construction work done on new structures and those done as improvements to existing structures in both private and public sectors. Data estimates include the cost of labor and materials, cost of architectural and engineering work, overhead costs, interest and taxes paid during construction, and contractor’s profits.

Data collection and estimation activities begin on the first day after the reference month and continue for about three weeks. Reported data and estimates are for activity taking place during the previous calendar month and the survey has been conducted monthly since 1964. 

How Construction Spending Figures Are Used

The Bureau of Economic Analysis uses construction spending data directly when producing GDP statistics. Other government agencies and construction-related businesses use the data for economic forecasts, market research, and financial decision-making.

Preliminary VIP survey estimates of the total dollar value of construction work done in the U.S. by private or public sector and type of construction are available in the Census Bureau's Construction Spending press release. For VIP estimates of the total dollar value of construction work done, two months of data are revised along with the release of each month's preliminary estimates.

An analysis of the VIP revisions for estimates is updated with the release of each year's preliminary May data. With the release of preliminary May data on the Construction Spending release, seasonally adjusted annual rates for the previous 28 months are also revised to reflect updated seasonal factors. Preliminary annual estimates are published with the release of January preliminary data for the following year. Annual estimates of value-in-place estimates for the most recent two years are finalized with the release of data for May of the following year.

Recent Trends and News on Construction Spending

In January 2018, President Donald Trump gave a State of the Union address in which he called on Congress to deliver a bill that would create $1.5 trillion in infrastructure investment, saying that the nation's highways, bridges, and other public assets are "crumbling," and federal funds should take a backseat to partnerships with state and local governments, and investment from the private sector. The federal government has historically funded a significant portion of infrastructure and transportation projects, but a leaked draft of the Trump Administration's plan shows a shift: new requirements will demand public agencies secure 80% of the financing in order to qualify for 20% from the federal government.