In the previous part, we saw that building permits reached their eight-year high in May. In April, US housing starts had reached a seasonally adjusted annual rate (or SAAR) of 1.135 million, which was the highest level since November 2007. Notably, construction spending has breached the $1 trillion mark.
Construction spending surges past $1 trillion
The above chart shows the recent trend in US (VTI) construction spending. Construction spending includes expenses incurred on new structures, as well as improvements to existing structures in the public and private sectors. The data are released on a monthly basis by the Commerce Department, with a reporting lag of one month.
May construction spending data, which was released on June 1, came in at a SAAR of $1.04 trillion. This is the second straight month where construction spending has passed $1 trillion SAAR.
Higher construction activity would benefit steel companies like Steel Dynamics (STLD), POSCO (PKX), and Timken Steel (TMST). Steel Dynamics currently forms 0.31% of the iShares Core S&P Mid-Cap ETF (IJH).
Housing sales improve
In another positive development, new home sales rose to a seven-year high in May. The sales of previously owned homes also rose to the highest level in five-and-a-half years. Almost all housing indicators point to a strengthening market, which should be positive for steel demand.
Until now, we have explored the indicators of the residential housing sector. In the next part of this series, we’ll explore how the nonresidential construction industry could play out in the coming months.