Construction spending in the U.S. unexpectedly fell in January following the biggest back-to-back gain in a year, reflecting a slump in nonresidential and government projects.
Outlays dropped 2.1 percent, the biggest decrease since July 2011, to a $883.3 billion annual rate, a Commerce Department report showed today in Washington. The median forecast of 45 economists surveyed by Bloomberg called for a 0.4 percent rise. Figures for December and November were revised up to show gains of 1.1 percent and 1.9 percent respectively, the best performance since the same two months in 2011.
Private non-residential building was depressed by a plunge in construction of power plants, while public outlays dropped to the lowest level since November 2006 as government agencies face budget strains. At the same time, mortgage costs near a record low are helping the residential real-estate market to recover, benefiting builders like PulteGroup Inc. (PHM:US)
“We’re likely to see improvement in housing this year,” Daniel Silver, an economist at JPMorgan Chase & Co. in New York, said before the report. “Growth rates for sales and construction should be strong.”
Estimates in the Bloomberg survey ranged from a drop of 0.7 percent to a gain of 1 percent, following an initially reported 0.9 percent increase for December and a 0.1 percent November advance.
Another Commerce Department report today showed consumer spending rose in January even as incomes dropped by the most in 20 years, indicating households were weathering the payroll-tax increase by socking away less money in the bank.
Household purchases, which account for about 70 percent of the economy, climbed 0.2 percent after a 0.1 percent gain the prior month. Incomes slumped 3.6 percent, sending the saving rate down to the lowest level since November 2007.
Also today, the Institute for Supply Management’s factory index unexpectedly rose to 54.2 in February from 53.1 a month earlier, the Tempe, Arizona-based group said today.
Economists projected the gauge would ease to 52.5, according to the median forecast in a Bloomberg survey. A reading greater than 50 signals expansion.
Stocks trimmed earlier losses following the manufacturing report. The Standard & Poor’s 500 Index fell 0.4 percent to 1,508.07 at 10:04 a.m. in New York.
Construction spending increased 7.6 percent in the 12 months ended in January, before adjusting for seasonal variations, according to today’s Commerce Department report.
Private construction spending dropped 2.6 percent from the prior month.
Homebuilding outlays were little changed, depressed by a 4.3 percent drop in home-improvement outlays. Spending on single-family projects rose 3.6 percent and multifamily housing climbed 1.7 percent.
Private non-residential projects decreased spending by 5.1 percent, led by a 14.5 percent slump for power plants.
Spending on public construction declined 1 percent from the prior month. Federal construction spending fell 1.3 percent, while state and local outlays retreated 1 percent to the lowest level since November 2006.
Outlays climbed 9.9 percent for all of 2012, the first annual increase since 2006 and the biggest since 2005, today’s report showed.
Recent reports indicate a pickup in demand. Purchases of new homes, logged when contracts are signed, jumped in January to a 437,000 annual pace, the strongest since 2008, the Commerce Department reported. Sales of previously-owned houses climbed to a 4.92 million annual rate in January, and the number of available properties slumped to 1.74 million, the lowest level since 1999, the National Association of Realtors said.
Residential construction is also improving. The Commerce Department reported that single-family home starts increased in January to the highest level since July 2008. Total housing starts dropped to an 890,000 rate, restrained by a drop in construction of multifamily dwellings.
Bloomfield Hills, Michigan-based company PulteGroup, the largest U.S. homebuilder by market value, said orders rose 27 percent in the fourth quarter while backlog, an indication of future revenue, jumped 82 percent.
“We have every reason to expect that housing has indeed turned the corner and that industry sales in 2013 can continue to move higher as pent-up demand is released,” Richard Dugas, chief executive officer, said on a Jan. 31 earnings call.
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