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The change in the real 10-yr Treasury rate is a likely cause for September’s increase in housing permits. Changes in the interest rate lead changes in housing permits by about 12 months on average. In fact, housing permits seem to have bottomed six months after interest rates started falling on a year-over-year basis.

Total Construction Spending. The real value of construction put in place in September was $106,189 million. Compared with a year ago, this was an increase of just 0.5%, the slowest rate of growth since construction spending started the current growth cycle in December 2011. The month-over-month rate of change has grown at a decelerating rate since September 2015. The annual rate of change peaked in the same month and has grown at a decelerating rate since then. Annual construction spending is growing at a rate of 3.2%, which is the slowest rate since January 2012, the last time spending contracted.

Residential construction spending is slowing as well. Month- over-month growth decelerated to 2.3% in September, which was the slowest rate of growth since January 2012. The annual rate of growth, now 13.4%, has decelerated nine months in a row.

In the short term, the trend in construction spending is negative for products, parts, and production of equipment used in construction. However, the change in the real 10-yr Treasury rate and the change in housing permits are moving in a positive direction, which should help maintain growth in construction spending and may even cause growth to accelerate next year.