U.S. construction spending touched its highest level in more than six years in April. Rise in construction spending along with encouraging new home sales and housing starts numbers indicate a revival in the broader housing sector. An increase in consumer price index also bolstered the view that the economy is gaining momentum, despite weak first quarter economic growth.
Construction Spending Rises
The US Census Bureau of the Department of Commerce reported 2.2% gain in construction spending in April. The percentage rise in construction spending in April was the largest since May 2012. March’s outlays were revised up 0.5% in contrast to the earlier decline of 0.6%.
April’s figure was also 4.8% higher than the year-ago figure. Moreover, for the first four months of 2015, construction spending amounted to $288.7 billion, which was 4.1% higher than the same period last year.
Meanwhile, spending on private construction went up 1.8% to an annual rate of $725.2 billion, its highest level since Oct 2008. While outlays on private residential construction increased 0.6% to a rate of $353.1 billion, spending on private non-residential construction climbed 3.1%, a six-year high.
Spending on state and local projects also reported the biggest jump in three years in April. Public construction outlays increased 3.3% to an annual rate of $280.9 billion, which more than offset a decline of 3.6% in federal construction outlays. Separately, the Dow Jones U.S. Select Home Construction Index (DJSHMB) has increased 3.4% year to date.
Housing Starts Rise, Home Sales Increase
Housing starts also soared to their highest level in almost seven and a half years in April. The U.S. Department of Commerce reported that privately-owned housing starts surged 20.2% to 1,135,000 in April from March’s revised tally of 944,000. Construction on new homes soared in April, banking on rise in single-family housing starts.
Single-family housing starts gained 14.9% in April to 733,000 from March’s revised figure of 628,000. The pace of permits for single-family homes also hit the fastest rate since early 2008. Separately, building permits increased at a rate of 10.1% in April to 1,143,000.
New home sales and pending home sales numbers for April too was bullish in nature. New home sales moved up 6.8% to 517,000 in April, following an 11.4% decline in March. Additionally, sales in March were revised upward from 481,000 to 484,000. The Pending Home Sales Index, a forward looking indicator based on contract signings, went up 3.4% to 112.4 in April, way ahead of the consensus expectation of a 1.5% increase.
Wider Economy Regaining Strength
Even though growth in the first quarter contracted, it was mostly due to transitory factors. Among those factors, harsh winter weather conditions have improved considerably and disruptions in Western Coast ports ebbed. Federal Reserve Chairwoman Janet Yellen also said that soft economic data in the first quarter will not have a lasting effect on the economy.
Moreover, the latest domestic reports have been positive in nature, indicating a wider recovery is in progress. The Institute for Supply management reported its May PMI had increased 1.3 percentage points from April to 52.8%, better than the consensus estimate of an increase to 51.8%.
Further, the Consumer Confidence Index increased to 95.4 in May from 94.3 in April. Core capital-goods orders, which don’t include the unpredictable defense and transportation sectors gained 1% in April following a revised 1.5% increase in March.
3 Prominent Picks
Below we present three stocks set to benefit from these trends. Finding a great growth stock can be a tough task. But thanks to our new style score system we have been able to identify a few growth stocks which have incredible potential in the near term.
Our research shows that stocks with Growth Style Scores of ‘A’ or ‘B’ when combined Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy) offer the best investment opportunities in the growth investing space.
KBR, Inc. KBR is a leading global engineering, construction and services company supporting the energy, hydrocarbon, government services, minerals, civil infrastructure, power and industrial markets.
KBR holds a Zacks Rank #2 (Buy) and has a Growth Style Score of ‘B.’ In the past two months, the Zacks Consensus Estimate for the current year was revised 8.6% higher. The forward price-to-earnings ratio (P/E) for the current financial year (F1) is 16.87.
Virco Mfg. Corp. VIRC designs, produces and distributes quality furniture for the contract and education markets worldwide including schools, colleges, universities, convention centers, federal and state institutions, churches and other businesses.
Virco holds a Zacks Rank #1 (Strong Buy) and has a Growth Style Score of ‘B.’ Over the past two months, the Zacks Consensus Estimate for the current year was revised 4.5% higher. It has a P/E (F1) of 11.43x.
Comfort Systems USA Inc. FIX is a national provider of comprehensive heating, ventilation and air conditioning installation, maintenance and repair services.
Comfort Systems USA holds a Zacks Rank #1 (Strong Buy) and has a Growth Style Score of ‘A.’ Over the past two months, the Zacks Consensus Estimate for the current year was revised 8% higher. It has a P/E (F1) of 24.41x.
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