Bloomberg News

Construction Spending in U.S. Climbs by Most in Four Months

February 01, 2012

Feb. 1 (Bloomberg) -- Construction spending in the U.S. rose in December at the fastest pace in four months, reflecting broad- based gains that signal the industry is stabilizing.

Building outlays increased 1.5 percent, the biggest gain since August, Commerce Department figures showed today in Washington. The median estimate of 51 economists in a Bloomberg survey called for a 0.5 percent rise.

A housing market that is gaining some steam as builders begin apartment projects may breathe life into the industry that’s struggled since triggering the recession in 2007. At the same time, decreased spending by the government may temper progress in construction as a whole.

“There are certainly bright spots for the construction outlook,” Michelle Meyer, a senior U.S. economist at Bank of America Corp. in New York, said before the report. “Multifamily construction will continue to improve given the ongoing shift from owning to renting and the lack of supply in the market. It will still be a very slow healing process.”

Estimates in the Bloomberg survey ranged from a drop of 0.6 percent to an increase of 1.5 percent. The Commerce Department revised the November reading down to a 0.4 percent gain from a previously estimated increase of 1.2 percent.

A report today from ADP Employer Services showed companies added 170,000 workers to payrolls in January, reflecting job gains in services and at small businesses. The increase followed a 292,000 gain the prior month.

Construction outlays were down 2 percent in December from the same time in 2010, before adjusting for seasonal variations.

Private Construction

Private construction spending rose 2.1 percent in December from the prior month, the biggest gain since May. The increase brought the value up to $529.7 billion at an annual rate, the highest level since December 2009.

Homebuilding outlays increased 0.8 percent, including a 0.2 percent increase in home improvement. Non-residential building climbed 3.3 percent.

Spending on public construction advanced 0.5 percent, the report said. Federal construction spending increased 0.3 percent.

The homebuilding industry is trying to recover from record- low traffic last year. About 302,000 new homes were sold in the U.S. in 2011, the worst year in data dating to 1963, Commerce Department figures showed Jan. 26.

Housing starts fared better, growing by 3.4 percent last year to the highest level since 2008. The strength came from work on multifamily dwellings, which jumped as more Americans opted to rent rather than own. Conversely, single-family home construction in 2011 was the weakest in records going back to 1959.

Housing Starts

The market may be beginning to stabilize. Builders broke ground on 470,000 single-family houses at an annual rate in December, the most since April 2010, the Commerce Department said Jan. 19. Residential construction added 0.23 percentage point to gross domestic product in the fourth quarter, the largest contribution since the April-June period of 2010.

Home sales and construction will improve in 2012, adding “modestly” to economic growth, according to a Fannie Mae forecast last month. Sales of new and existing homes are likely to increase 3.5 percent, and housing starts are projected to rise 16 percent, the group’s chief economist said Jan. 13.

Homebuilder sentiment has also ticked up. The National Association of Home Builders/Wells Fargo sentiment index rose in January to the highest level since June 2007 as sales and buyer traffic improved.

“Although macroeconomic and housing conditions remain soft, we are cautiously optimistic for the remainder for 2012,” Donald Tomnitz, chief executive officer of Fort Worth, Texas-based D.R. Horton Inc., said in a Jan. 27 conference call. “Simply put, our business feels more positive.”

The largest U.S homebuilder by volume reported net home orders that rose to 3,794 in final three months of 2011 from 3,363 a year earlier.

--With assistance from Kristy Scheuble in Washington. 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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