Last month I started by report on construction spending by writing “ Construction spending for October also came in generally positive. On a nominal basis, total construction spending rose 0.4% to a new record, and residential spending rose 1.5%.”

Well, you can forget that, because this month was one of those times when revisions to past data make all the difference.

On a nominal basis, total construction spending was unchanged, while residential construction spending rose 0.1%. But total construction spending for both September and October was revised downward by 1.0%. The carnage in residential construction spending was even worse, with both September and October revised down by -3.2%! Thus what was a (surprising) rising trend line for residential construction spending in particular was completely reversed, as shown in the graph below:

(Click on image to enlarge)

As revised, even nominally both series peaked in May of 2004.

The prices of construction materials were declining through September, making real construction spending even better. But that has reversed as well, with prices rising in both October and November, making the “real” declines in the nominal graph above even steeper:

(Click on image to enlarge)

This is particularly worrisome, because manufacturing has been in a slight downtrend for two solid years. Thus it has been construction which has been aiding improvement in the economy since then. If construction has also rolled over, then goods production as a whole - and employment in goods production - are probably close behind. As to which, recall that employment in construction and goods production generally lag construction and sales. Thus if they have rolled over, employment will likely follow - and indeed in last two months, such employment has been below September’s peak.

Typically the ISM manufacturing survey is reported on the same day as construction spending. This month that is not true, as the ISM index will be reported tomorrow. If it continues to show contraction, that is trouble.

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