Within its release for November 2015’s construction spending estimates, the U.S. Census Bureau announced in a footnote that it revised data on its monthly estimates of private residential construction spending, of total private, of total residential and of total construction spending for January 2005 through October 2015.
Now, the Bureau of Economic Analysis (BEA) has released a FAQ on how the revisions will change its quarterly and annual estimates of private fixed investment (PFI). The BEA uses the data to prepare annual PFI estimates for residential structures. Because of the correction, the BEA’s annual estimates on residential improvement and GDP also will change.
According to the FAQ, BEA uses a 3-year centered moving average of the Census Bureau’s annual residential improvement spending data to prepare annual estimates of PFI residential improvements. Estimates for the most recent year reflect quarterly indicators and analyst judgment. This methodology is used to address volatility in the Census Bureau residential improvement spending data. Therefore, the revisions to annual PFI residential investment estimates are expected to be dampened relative to revisions to the Census improvements data.
“BEA’s quarterly residential improvements estimates, however, are not estimated using the Census Bureau’s monthly residential improvement data. Instead, BEA’s quarterly estimate methodology uses a composite indicator that is derived from the Census Bureau’s monthly retail sales for building material and garden equipment and supplies dealers and the Bureau of Labor Statistics aggregate weekly payrolls of production and nonsupervisory employees for residential remodelers,” the FAQ stated.
BEA is in the process of evaluating the impact of the Census Bureau revisions to construction spending data on the annual estimates of PFI residential improvements for the 2005 to 2015 period.
“At this time, a decision has not been made whether to incorporate revisions for a longer time span than the most recent three years. If BEA decides to incorporate revisions beyond the usual three-year period as part of this summer’s annual revision, we will inform data users in advance of that release,” the FAQ stated.
There had been a processing error in the tabulation of data on private residential improvement spending.
“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,” the November 2015 footnote stated.
The spending figures were recalculated after changing the weighting for residential improvements, such as remodeling, additions and replacements of water heaters and furnaces. The construction spending data is one field that economists use to determine the health of the housing industry and the country’s GDP.
“The revisions mean that remodeling spending did not take the deep dive in 2014 that the previous estimates suggested,” National Association of Home Builders (NAHB) Chief Economist David Crowe said. “The revisions re-confirm NAHB’s belief all along that remodeling has been a staple behind the whole housing industry.”
The updated data could show that not just the housing industry, but the overall economy was healthier than previously reported.
According to a report from The Fiscal Times: “The average size of the corrections over the 10-year period in question has been 1.2 percent of the seasonally adjusted total value of construction ‘put in place.’ The 1.2 percent figure is in absolute terms, but the revisions were both positive and negative at various times, and ranged from practically 0 to 4.6 percent. While the size of the revisions has waxed and waned somewhat over the years, the data shows a clear trend toward larger misstatements in the most recent data. In 2014 and 2015, all of the original reports understated the ‘Total Construction’ value by a factor of 3.1 percent, on average. In the first 10 months of 2015, that figure rose to 3.5 percent.”