AP News

Ahead of the Bell: US construction spending


WASHINGTON (AP) — U.S. builders likely increased spending on construction projects in August, helping to fuel a modest recovery in the housing market.

Economists forecast that spending grew 0.4 percent in August, according to a survey by FactSet. The Commerce Department will release the report at 10 a.m. EDT Monday.

In July, construction spending fell 0.9 percent, the biggest drop in a year. But the decline was chiefly because of a big drop in home improvement projects. Spending on single-family home construction rose for the fourth straight month, while spending on apartments increased for the ninth straight month.

Overall, construction spending declined to a seasonally adjusted annual rate of $834.4 billion in July. That's nearly 12 percent above a 12-year low hit in February 2011. But it is still roughly half of what's considered healthy.

Gains in construction spending are among the many signs the housing market is finally showing sustained growth more than five years after the bubble burst.

Home prices are rising consistently. Construction of single-family homes rose last month to the fastest annual rate in more than two years. Sales of newly built and previously occupied homes are up compared to last year, helped by the lowest mortgage rates on record.

While the housing market has strengthened this year, the broader economy has languished. High unemployment and weak wage growth have kept consumers from spending more freely. Manufacturing has stumbled, and businesses are investing less.

The Federal Reserve is hoping to drive mortgage rates lower to make home buying more affordable, and therefore help the economy grow. Earlier this month, it said it would spend $40 billion a month to buy mortgage-backed securities until the job market shows substantial improvement.

The broader economy is likely to benefit from a stronger housing market. When home prices rise, people typically feel wealthier and spend more. Consumer spending drives nearly 70 percent of economic activity.

Though new homes represent less than 20 percent of the housing sales market, they have an outsize 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 the National Association of Home Builders.


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