Construction Spending: Resi Continues Rebound

Bottom Line:   Construction spending rose more than expected in May, and there were positive revisions to prior data. While these data are lagged and prone to revision, the trend improved notably late in the 1st Quarter and into the 2nd. Residential spending accelerated to the upside in May after growing for the first time in 10 months in April. Nonresidential construction was also higher, driven by continued strength in manufacturing-related construction. Construction activity likely turned from a headwind to a tailwind in the 2nd Quarter. Constrained supply and demographic-led demand in residential combined with continued long-term investment in manufacturing and health care are now firmly offsetting the weakness in the office sector.