Bloomberg News

U.S. Construction Spending Rose in September for Second Month

November 01, 2011

Nov. 1 (Bloomberg) -- Construction spending in the U.S. rose in September for as second month as gains in private projects outpaced a drop in government outlays.

Building outlays increased 0.2 percent after jumping 1.6 percent in August, Commerce Department figures showed today in Washington. The median estimate of economists in a Bloomberg survey called for a 0.3 percent gain.

Spending on multifamily housing is helping to lift activity from decade lows as more families opt to rent rather than purchase a new home. While lower interest rates may also help drive investment in commercial projects, overall weakness in the housing market coupled with a reduction in government spending will weigh on the construction industry.

“Construction spending is rising from a very, very low level, but it does look like we’ve established a base,” Christopher Low, chief economist at FTN Financial in New York, said before the report. “Residential construction is at least stable, but there’s no real growth there.”

Estimates of 50 economists ranged from a drop of 0.5 percent to an increase of 1.5 percent. The Commerce Department revised the August reading up from a previously estimated increase of 1.4 percent.

Private construction spending climbed 0.6 percent in September from the prior month. Homebuilding outlays increased 0.9 percent, the most since May. Non-residential projects climbed 0.3 percent to $273.5 billion, the highest level since December 2009. Health care facilities and transportation networks led the gain in non-residential work.

Federal Cutbacks

Outlays on public construction dropped 0.6 percent, the report said. Federal construction spending decreased 6.8 percent to $27.5 billion, the least since January 2010.

Builders in September began work on the most homes since April 2010 as apartment and condominium construction surged. Housing starts jumped 15 percent to a 658,000 annual rate after falling 7 percent the prior month, the Commerce Department reported Oct. 18.

The gains may have helped boost homebuilder sentiment. The National Association of Home Builders/Wells Fargo sentiment index unexpectedly increased to 18, the highest level since May 2010, figures showed last month. Readings less than 50 mean more respondents said conditions were poor.

Even so, the number of new single-family homes for sale in September was the lowest on records going back to 1963. There were 163,000 new properties on the market for a second month, a product of the distressed property surfeit that is holding down home prices.

‘Stable’ Market

“Overall U.S. housing demand remains stable but at historically low levels,” Richard Dugas, chairman and chief executive officer of PulteGroup Inc., the largest homebuilder by revenue, said in an Oct. 27 call with analysts. “Conditions have not changed very much with incredible values in home prices and historically low interest rates on one side, balanced against a weak economy, low consumer confidence and tight credit availability on the other.”

Federal Reserve policy makers moved in September to lower borrowing costs by replacing $400 billion of short-term Treasuries in the Fed’s portfolio with longer-term bonds, which help spur investment in real estate.

The central bankers meet again today and tomorrow to determine whether any additional action is needed to spur the world’s largest economy.

--Editor: Carlos Torres

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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