Friday, July 29, 2016

Consumer Sentiment Slips due to Global Uncertainty

Consumer sentiment slipped in July to 90.0, down 3.5 points from the previous month, according to the University of Michigan Consumer Sentiment Index.

The Current Economic Conditions Index fell 1.8 points from June to 109.0, while the Index of Consumer Expectations fell 4.6 points to 77.8.

“Although confidence strengthened in late July, for the month as a whole the Sentiment Index was still below last month’s level mainly due to increased concerns about economic prospects among upper income households,” said Richard Curtin, Chief Economist of UM Surveys of Consumers. “Uncertainties surrounding global economic prospects and the presidential election will keep consumers more cautious in their expectations for future economic growth."

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Second Quarter GDP Disappoints at 1.2%

Real GDP grew at an annual rate of 1.2% during the second quarter of 2016, according to the Bureau of Economic Analysis’s “advance” estimate, up from the first quarter’s growth rate of 0.8%. The increase reflected positive contributions from personal consumption expenditures and exports, which were partially offset by negative contributions from private inventory investment, nonresidential fixed investment, residential fixed investment, and state and local government spending.

Consumption was the largest contributor to GDP, accounting for 2.8% of growth, up from 1.1% during the first quarter. Consumption spending grew by $190.1 billion during the second quarter of 2016, compared to $59.2 billion during the first quarter. Net exports also contributed to growth, adding 0.2% to GDP during the quarter.

Private domestic investment was one of the largest negative contributors, subtracting a total of 1.7% from GDP growth, driven by slower growth in both fixed investment and private inventories.

Government spending slowed during the quarter, subtracting 0.2% from GDP, as both federal and local government spending increased at a modest rate of 0.4%.

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Wednesday, July 27, 2016

FOMC: Economic Risks have Diminished

The Federal Open Market Committee (FOMC) once again decided to maintain the current target for the federal funds rate at 25-50 basis points in July.

“Near term risks to the economic outlook have diminished,” said the FOMC in a post-meeting statement. This was likely a reference to both financial market uncertainty following Brexit and labor market uncertainty following an anemic jobs report in May.

In their statement, the Committee noted that economic activity was expanding at a moderate pace. Household spending had grown strongly and the labor market had also strengthened since the June meeting. In contrast, inflation continued to run below the Committee’s 2 percent objective, partly reflecting low energy prices along with prices of non-energy imports, and business fixed investment was viewed as “soft.”

Against this backdrop, all but one member voted to maintain accommodative policy at this meeting. Kansas City Federal Reserve President Esther George voted against the action, citing a preference for a 25 basis point increase.

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Durable Goods Orders Fall for Second Consecutive Month

New orders for manufactured durable goods fell 4.0% to $219.8 billion in June, following a 2.8% May decrease according to the U.S. Census Bureau. New transportation orders drove the decrease, falling 10.5% to $72.2 billion. Excluding transportation, new orders fell 0.5%.

New orders excluding defense fell 3.9% on the month, as orders of nondefense capital goods fell 11.3% to $64.8 billion.

Shipments of manufactured durable goods rose 0.4% to $232.5 billion, following a 0.3% decrease in May.

Inventories of manufactured durable goods fell 0.2% to $381.5 billion, following a 0.4% May decrease. Inventories have now declined for eleven of the last twelve months.

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Tuesday, July 26, 2016

New Home Sales Rose in June

New single-family home sales rose to a seasonally adjusted annual rate of 592,000, according to the U.S. Census Bureau and the Department of Housing and Urban Development. The June rate is 3.5% below the revised May rate of 572,000 but 25.4% above the June 2015 estimate.

Sales were mixed across regions, rising 10.4% in the Midwest and 10.9% in the West, but falling 5.6% in the Northeast and 0.3% in the South.

The median price of a new home was $306,700, up 6.2% from May. The average price was $358,200, up 1.9% from the previous month.

At the end of June, there was an estimated supply of 4.9 months at the current sales rate, down from a 5.9 month supply in May.

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Consumer Confidence Largely Unchanged in July

The Conference Board Consumer Confidence Index slipped to 97.3 in July, down 0.1 points from the previous month.

The Present Situation Index rose 1.7 points to 118.3, while the Expectations Index slipped 1.3 points from June.

“Consumers were slightly more positive about current business and labor market conditions, suggesting the economy will continue to expand at a moderate pace,” said Lynn Franco, Director of Economic Indicators at The Conference Board. “Expectations regarding business and labor market conditions, as well as personal income prospects, declined slightly as consumers remain cautiously optimistic about growth in the near term.”

The labor market outlook was slightly more favorable in July, as the share of consumers expecting fewer jobs in the coming month decreased 0.7 points to 17.0%, while those anticipating more jobs was unchanged at 14.0%. Income expectations declined as 16.6% of consumers expected their incomes to increase in the coming months, down from 18.2% in June.

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Home Prices Increased in May

The 20-City CoreLogic Case-Shiller Composite Index increased 5.2% year-over-year in May, down from 5.4% in April. The 10-City Composite Index increased 4.4% annually, down from a 4.7% increase in the previous month. The National Index, which covers all nine Census divisions increased by 5.0%, unchanged from April.

On a seasonally adjusted monthly basis, the 20-City Composite increased by 0.9%, the 10-City Composite increased by 0.8% and the National Index increased by 1.2%.

“In addition to strong prices, sales of existing homes reached the highest monthly level since 2007 as construction of new homes showed continuing gains,” says David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices. “Regional patterns seen in home prices are shifting. Over the last year, the Pacific Northwest has been quite strong while prices in the previously strong spots of San Diego, San Francisco and Los Angeles saw more modest increases.”

Monthly home prices rose in twelve of the twenty cities covered by the index. Portland saw the largest gain with prices increasing 0.7% on a seasonally adjusted basis. In contrast, prices in San Francisco fell by 1.3%.

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Thursday, July 21, 2016

Existing Home Sales Continue to Rise

Existing-home sales rose 1.1% to a seasonally adjusted annual rate of 5.57 million, according to the National Association of Realtors (NAR). Buoyed by an uptick in first time home buyers, sales reached their highest rate since February 2007. Annual sales of homes were mixed across regions, falling 1.3% in the Northeast, but rising 3.8% and 1.7% in the Midwest and West. Home sales in the South were unchanged from May.

"Existing sales rose again last month as more traditional buyers and fewer investors were able to close on a home despite many competitive areas with unrelenting supply and demand imbalances," said NAR Chief Economist Lawrence Yun. “Looking ahead, it’s unclear if this current sales pace can further accelerate as record high stock prices, near-record low mortgage rates and solid job grains face off against a dearth of home available for sale and lofty home prices that keep advancing.”

Total housing inventory slipped 0.9% in June to 2.12 million homes available for sale, while the median existing-home price moved up to $247,700, up 4.8% from a year ago.

Distressed sales were 6% of sales in June, unchanged from last month. Four percent of sales were foreclosures while 2% were short sales. On average, foreclosures and short sales sold for discounts of 11% and 18% respectively.

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Tuesday, July 19, 2016

Housing Starts Rose in June

Housing starts rose to a seasonally adjusted annual rate of 1.189 million in June, 1.5% above the revised May estimate of 1.135 million but 2.0% below the June 2015 rate.

Housing activity was mixed across regions. In June, starts rose 46.3% in the Northeast and 17.4% in the West, but fell 3.4% in the South and 5.2% in the Midwest.

New building permits rose during the month, rising 1.5% above May’s rate to 1.153 million. New permits, however, declined year-over-year, falling 2.0% from the June 2015 rate.

Housing completions rose 12.3% on the month to a seasonally adjusted annual rate of 1.147 million. Completions were 18.7% higher than in June 2015.

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Monday, July 18, 2016

Builder Confidence Slipped in July, but Remains Positive

The National Association of Home Builders/Wells Fargo Housing Market Index fell 1 point to 59 in July, after rising 2 points in June. Over the past six months, the index has held within a range of 58 and 60 points.

“The economic fundamentals are in place for a continued slow, steady growth in the housing market,” said NAHB Chief Economist Robert Dietz. “Job creation is solid, mortgage rates are at historic lows and household formations are rising. These factors should help to bring more buyers into the market as the year progresses.”

The three index components posted losses in July. The index measuring sales conditions and buyer traffic fell 1 point each to 63 and 45 respectively, while the index measuring sales expectations in the next six months fell 3 points to 66.

The three month moving averages were mostly unchanged, with the Northeast, Midwest and South holding at 39, 57 and 61. The West rose 1 point to 69.

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Friday, July 15, 2016

Industrial Production Rose in June, But Fell 1.0% Quarterly

Industrial production rose 0.6% in June after declining 0.3% in May, according to the Federal Reserve. The increase was largely due to growth in manufacturing output. On a quarterly basis, industrial production fell at an annual rate of 1.0%.

Manufacturing output rose 0.4% in June, mostly on account of an increase in motor vehicle assemblies. The output of goods other than motor vehicles and parts was unchanged.

The utilities index rose 2.4% as warmer than usual June weather boosted electrical demand for air conditioning.

The mining index edged up 0.2% in June, as rises in the indices for oil well drilling and servicing, and coal offset declines in oil and gas extraction.

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Retail Sales Rose 0.6% in June

There were $457.0 billion in retail and food services sales in June, up 0.6% from the previous month and 2.7% from June 2015, according to the U.S. Census Bureau.

Core retail sales – excluding automobiles and parts – increased 0.7% after rising 0.4% in the previous month. Year-over-year core sales increased by 3.2%.

Retail trade sales increased 0.7% on the month compared to a 0.4% rise in May, and rose 2.4% from a year ago.

Sales at clothing and clothing accessories stores dipped in June, falling 1.0% from the previous month and 0.9% from the previous year. Sales at gasoline stations increased in June, rising 1.2%. Gasoline station sales were down 9.6% from the previous year, however.

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CPI Up 0.2% in June

The Consumer Price Index increased 0.2% in June on a seasonally adjusted basis, along with rises in the indexes for energy and all items less food and energy. Over the last 12 months, the all-items index rose 1.0% before seasonal adjustment.

The energy index increased 1.3% in June, rising for the fourth consecutive month, although major components were mixed. The gasoline and fuel oil indices each rose 3.3%, while the electricity and natural gas indices declined 3.3% and 0.4% respectively.

The food index declined 0.1% after a 0.2% decrease in May. Prices for food at home fell 0.3% in June and have fallen 1.3% over the past year. Prices for food away from home increased 0.2% for the month and 2.6% over the course of the year.

Prices for all items less food and energy increased 0.2% in June, the same as in May. The advance was largely due to a rise in the shelter index, which advanced 0.3% during the month.

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Thursday, July 14, 2016

Producer Prices Rose 0.5% in June

Producer prices rose 0.5% in June, seasonally adjusted, after rising 0.4% in May, according to the U.S. Bureau of Labor Statistics. The majority of June’s increase was attributable to an increase in prices for final demand services. Producer prices have increased 0.3% over the last 12 months.

Prices for final demand services increased for the third consecutive month, rising 0.4% in June. Much of the rise was due to an increase in the index for services related to securities brokerage and dealing, which rose 7.7%. In contrast, margins for apparel, footwear, and accessories retailing declined 2.6%.

The index for final demand goods rose 0.8% in June, the largest increase since May 2015. Three quarters of the increase was attributable to final demand energy, which rose 4.1% amid a 9.9% increase in gasoline prices. Prices for final demand foods also increased, rising 0.9%.

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Wednesday, July 13, 2016

Beige Book: Economic Activity Expanding at a Slower Pace

Economic activity expanded across most of the twelve Federal Reserve Districts, according to the July 2016 edition of the Federal Reserve’s Beige Book. Most Districts reported a modest pace of growth, while some reported a moderate or steady pace.

Banking conditions were mixed. Overall loan demand increased; however, the pace of increase varied (slow in Cleveland but strong in St. Louis). Loan demand for commercial and industrial loans was mixed, while consumer lending was unchanged or improved across Districts. Lending standards were unchanged in New York, Cleveland, and Kansas City. Dallas reported relaxed standards for all sectors except energy.

Agricultural activity was “mixed but improving on average,” according to the report. Districts reported that farmers were able to lock-in higher crop prices for the fall harvest, in addition to benefitting from more favorable growing conditions.

Labor conditions improved at a modest rate, with growth ranging from little changed in Cleveland, to moderate in New York. District contacts continued to report strong demand for skilled labor and difficulty filling positions in technical fields. Wage pressures remained modest to moderate, with the strongest pressures linked to skilled workers and difficult-to-fill positions.

Consumer spending remained positive but has begun to show signs of softening. Retail sales activity was mixed across Districts although the outlook among retailers was optimistic in Boston, Philadelphia and Kansas City. Contacts in Atlanta and St. Louis expect sales to be flat or slightly higher in the coming months.

Tuesday, July 12, 2016

Small Business Optimism Edged up in June

The NFIB Small Business Optimism Index increased 0.7 points in June, rising to 94.5. Four of the ten index components posted gains, while three declined.

Labor market conditions were largely unchanged, as 56% of small business owners reported hiring or trying to hire, the same as in May. Forty-eight percent reported few or no qualified workers (also unchanged from May). Fifteen percent of employers surveyed cited the difficulty of finding qualified workers as their top business problem. A seasonally adjusted net 11% of employers plan to create new jobs, down 1 point from May.

The percent of owners reporting higher sales in the past three months rose 4 points to a net negative 4%. Eleven percent of small business owners reported weak sales as their top business problem, down 3 points from the previous month.

Capital spending was slightly lower in June, as 57% of owners reported capital outlays, down 1 point from May. The percent of owners planning capital outlays in the next 3 to 6 months rose 3 points to 26%.

Credit conditions deteriorated some, as 5% of owners reported that all their borrowing needs were not met, up 1 point on the month. Only 2% of business owners surveyed reported that financing was their top business problem, the same as in May.

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Friday, July 8, 2016

Consumer Credit Grew 6.2% (SAAR) in May

Consumer credit increased at a seasonally adjusted annual rate of 6.2% in May, up from a 4.5% rate in April. Total outstanding credit rose $18.6 billion during the month (compared to $13.4 billion in April) to $3.62 trillion.

Revolving credit rose at an annual rate of 3.0% ($2.4 billion) to $953.3 billion, compared to a 1.7% annual increase in April.

Non revolving credit rose at an annual rate of 7.3%, or $16.2 billion, compared to April’s 5.5% rate. Total outstanding non-revolving is now $2.67 trillion.

Federal government holdings of student loans continue to be the largest portion of non-revolving credit, comprising approximately 37% of outstanding credit. Depository institutions and finance companies are the secondary and tertiary holders, with 25% and 23%, respectively, of outstanding non-revolving credit.

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Employment Rebounds: 287,000 Jobs Added in June, Unemployment at 4.9%

Total nonfarm payroll employment rose by 287,000 in June, the highest monthly increase since October 2015. The national unemployment rate rose to 4.9%.

Leisure and hospitality added 59,000 jobs, after little change in May. Healthcare and social assistance added 58,000 jobs. Financial activities employment rose by 16,000 and has risen by 163,000 over the year. Employment in information increased by 44,000 and professional and business services added 38,000 jobs. Retail trade edged up by 30,000 while mining continued the downward trend subtracting 6,000 jobs in June.

The civilian labor force participation rate was 62.7%, little changed from May. The number of long-term unemployed, those jobless for 27 weeks or more, changed little in June at 2.0 million. Discouraged workers, those who gave up looking for work, was 502,000, down 151,000 from a year ago.

Average hourly earnings edged up 2 cents to $25.61, following a 6 cent increase in May. Year-over-year earnings have grown by 2.6%.

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Thursday, July 7, 2016

ADP: 172,000 Jobs added in June

The non-farm private sector added 172,000 jobs in June, according the ADP National Employment report, an increase from June’s downwardly revised growth of 168,000. Service-providing employment provided all of the month’s growth, while the goods-producing sector shed jobs during the month.

Small businesses with fewer than 50 employees added 95,000 jobs, up from 84,000 in May. Medium-sized businesses with 50-499 employees added 52,000 jobs, down from 60,000 last month. Large businesses added 25,000, up from 23,000 in May.

Service providing employment rose by 208,000 jobs as the trade transportation and utilities and professional and business services sectors both grew upwards of 50,000 jobs. In contrast, goods-producing employment fell by 36,000 jobs amid sharp cuts in the manufacturing and construction industries.

“Since the start of 2016, average monthly job creation has slightly dropped,” said Ahu Yuldirmaz, vice president and head of the ADP Research Institute. “Lackluster global growth, low commodity prices, and an unfavorable exchange rate continue to weigh on U.S. companies, especially larger companies.”

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Job Cuts Slowed in the Second Quarter

Employers announced plans to cut 38,536 jobs in June, according to a report issued by Challenger Gray & Christmas. June’s announced cuts were 28% higher than May’s total, but still well below the 12 month average. The pace of cuts in the second quarter was 27% lower than the first quarter of the year.

“It is not unusual to see a slowdown in job cuts during the summer months,” said John A. Challenger, CEO of Challenger Gray & Christmas. “Other factors are definitely contributing to the decline, the biggest one being the precipitous drop off in job cuts attributed to low oil prices.”

Job cuts in the energy sector fell to 28,310 during the second quarter, down 42% from the first quarter’s total. Cuts in the retail and health care sectors also fell significantly in the second quarter, down 48% and 65% respectively. In contrast, the computer industry increased layoffs during the second quarter. The industry has cut 39,589 jobs through the first half of 2016.

“We may continue to see low job cuts throughout the remainder of 2016, as employers take a wait-and-see stance on workforce levels. Several uncertainties, including national elections, the recent Brexit, and global security and economic issues are giving employers pause when it comes to workforce decisions,” said Challenger.

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Wednesday, July 6, 2016

FOMC Minutes: No Rate Hike amid Slow Job Growth

Fed officials expressed a degree of uncertainty regarding the slowdown in payroll employment gains in the minutes of their June 14 – 15 Federal Open Market Committee (FOMC) meeting.

Participants observed that transitory factors may have understated payroll growth, however many thought the underlying pace of growth had slowed from previous months.

Despite weaker labor market growth, participants noted that economic activity “appeared to have picked up,” citing an increase in consumer spending and in the housing sector. The drag associated with net exports also appeared to have diminished some, but fixed investment remained soft.

Members noted that uncertainty regarding the U.K. referendum was an additional factor in policy deliberations, and that the outcome and its potential effect on economic and financial markets would need to be monitored closely.

At the conclusion of the meeting, the Committee unanimously decided to maintain the target federal funds rate at 0.25 – 0.50 percent.

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ISM: Non-Manufacturing Sector Expands

The ISM Non-Manufacturing Index registered 56.5 points in June, up 3.6 points from May’s rate and marking the 77th consecutive month of growth in the sector. Fifteen non-manufacturing industries reported growth in June, while three reported contraction.

Growth in the Business Activity Index rose to 59.5 points, up 4.4 points from May’s reading. Respondents reported seeing “greater demand for services by customers” along with increased month-to-month and year-over-year sales. Fourteen of the eighteen industries surveyed reported growth, while two industries, Professional, Scientific & Technical Services and Educational Services, reported contraction.

Non-manufacturing employment grew in June after contracting in May. The index rose 3 points to 52.7. Comments from respondents include: “Hiring to address open positions and workload” and “Higher volumes – higher direct labor levels.” Twelve industries reported increasing employment during the month, while two industries, Educational Services and Other Services, reported contraction.

The New Orders Index registered 59.9 points, up 5.7 from May. Some respondents cited increased marketing and job awards as a reason for the rise in new orders. Fifteen industries reported growth, while three reported contraction.

Supplier deliveries slowed for the sixth consecutive month as the index registered 54.0 points (readings above 50 for this index indicate slower deliveries). Ten industries reported slowed deliveries while only the Agriculture industry reported faster deliveries.

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Foreign Trade Deficit Expanded in May

The U.S. international trade deficit increased in May to $41.1 billion, up $3.8 billion from April, according to the U.S. Census Bureau and the Bureau of Economic Analysis. The widening of the deficit was driven by a $3.4 billion increase in imports and a $0.3 billion decrease in exports.

The goods deficit increased $3.7 billion to $62.2 billion, while the services surplus declined $0.1 billion to $21.1 billion. The petroleum deficit narrowed by $0.3 billion to $7.2 billion.

Exports of goods fell $0.2 billion to $119.8 billion, driven by a decrease in capital goods and automotive vehicles and parts. Exports of services fell $0.1 billion to $62.5 billion due to declines in travel exports.

Imports of goods rose $3.4 billion to $182.1 billion, primarily due to an increase in industrial supplies and materials. Imports of services were unchanged at $41.4 billion in May.

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Tuesday, July 5, 2016

Factory Orders Declined in May

New orders for manufactured goods, down following two consecutive monthly increases, fell $4.6 billion or 1.0% to $455.2 billion, according to the U.S. Census Bureau. This followed a 1.8% increase in April.

Shipments, down three of the last four months, decreased $0.6 billion or 0.2% to $231.6 billion. Inventories, down ten of the last eleven months, decreased $1.1 billion or 0.3% to $382.6 billion. Unfilled orders, up four of the last five months, increased $1.7 billion or 0.2% to $1,138.9 billion.

The inventories-to-shipments ratio was 1.36, unchanged from April.

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Friday, July 1, 2016

Manufacturing Expands for Fourth Consecutive Month

The ISM Manufacturing Index rose to 53.2 points in June – up 1.9 points from May’s reading of 51.3. June’s reading marks the fourth consecutive month of growth in the manufacturing industry, as readings above 50 indicate expansion. Of the eighteen manufacturing industries, thirteen reported growth while three reported contraction.

The employment index registered 50.4 points, an increase of 1.2 points from May’s reading of 49.2. Seven industries including textile mills, primary metals and printing and related support activities reported expansion. Six industries including fabricated metal products, machinery and petroleum and coal products reported contraction.

The index of new orders registered 57.0 points in June, up 1.3 points. Twelve industries reported growth in new orders, while five industries including transportation equipment, wood products and primary metals reported a decline.

Export orders rose 1 point 53.5 in June, indicating expansion. Ten industries reported an increase in exports, while three industries including nonmetallic mineral products and primary metals reported a decline in export orders.

The inventories index rose 3.5 points to 48.5, indicating raw materials inventories are contracting in June for the 12th consecutive month, but at a slower rate than in May.

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Construction Spending Fell 0.8 Percent in May

Construction spending fell 0.8% in May to $1,143.3 billion (SAAR). April’s spending estimate was revised up to $1,152.4 billion. During the first five months of the year, construction spending amounted to $438.5 billion, 8.2% higher than in the first five months of 2015.

Total private construction fell to a rate of $859.3 billion, 0.3% below the revised April estimate of $861.9 billion.

Private residential construction was at a seasonally adjusted annual rate of $451.9 billion, largely unchanged from the previous month’s rate.

Private nonresidential construction fell 0.7% to a rate of $407.4 billion, as construction related to commercial, educational, manufacturing and other segments fell.

Public construction fell 2.3% to a rate of $284.0 billion, in large part due to a 5.4% decline in educational construction.

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