Construction Spending Unexpectedly Falls in First Decline in 8 Months

Wednesday, 02 Jan 2013 10:33 AM

 

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Spending on U.S. construction projects fell in November from October because a steep drop in volatile federal projects offset another gain in home building.

Construction spending dipped 0.3 percent in November, the Commerce Department said Wednesday. It was the first decline since March and followed a 0.7 percent increase in October, which was revised lower.

Total spending declined to a seasonally adjusted annual rate of $866 billion. That is 16.1 percent above a 12-year low hit in February 2011. Even with the gain, the level of spending remained only about half of what's considered healthy.

The November figures were dragged lower by a 5.5 percent decline in spending on federal government projects. Federal spending fluctuates sharply from month to month. In October, it rose 9.7 percent.

Spending on residential construction, however, has steadily increased over the past eight months and rose 0.4 percent in November.

Paul Ashworth, chief U.S. economist for Capital Economics, said the decline in construction spending was "nothing too much to worry about."

"This is a volatile series month to month," Ashworth said. "The recent surge in housing starts suggests that residential construction spending will expand at a fairly rapid pace this year, particularly when Hurricane Sandy rebuilding is added in."

Spending on commercial projects dropped 0.7 percent. Spending on office buildings, hotels and shopping centers declined. Overall government spending dipped 0.4 percent.

A separate report last month showed that builders broke ground on fewer homes in November after starting work at the fastest pace in more than four years in October. Housing starts are on track for their best year in four years.

Strength in home building has been one of the bright spots for the economy this year. But overall construction is still being offset by weakness in commercial real estate and tight state and local government budgets.

Sales of new homes rose 4.4 percent in November to the highest annual pace in two and a half years. New-home sales are more than 15 percent higher than a year ago.

From July through September, residential construction grew at an annual rate of 13.5 percent. Housing construction is on track to contribute to economic growth this year, the first time that has happened in the five years since the housing bubble burst.

Though new homes represent only a fraction of the housing market, they have an out-size impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to statistics from the National Association of Home Builders.

Builders are increasingly confident that the housing recovery will endure. A measure of their confidence rose in November to the highest level in 6 1/2 years.

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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