Bloomberg News

Construction Spending in U.S. Climbed in July to Four-Year High

September 03, 2013

Construction spending in the U.S. increased in July to the highest level in four years, propelled by gains in residential real estate.

Outlays climbed 0.6 percent to a $900.8 billion annual rate, the most since June 2009, after being little changed in June, the Commerce Department reported today in Washington. The median forecast of 51 economists surveyed by Bloomberg called for a 0.4 percent increase.

Gains in employment, housing and non-residential building in the second half of the year will probably help strengthen the economic expansion. Nonetheless, tight land inventories, rising mortgage rates may temper the pace of the industry’s recovery.

“We’re going to continue to post growth,” Mike Englund, chief economist at Action Economics LLC in Boulder, Colorado, said before the report. “It’s growing a little faster than the broader economy, obviously getting help from residential construction.”

Estimates in the Bloomberg survey ranged from a decrease of 0.7 percent to a gain of 0.8 percent. June’s reading was revised from a previously reported 0.6 percent decline. Figures for May were also revised up.

Construction spending increased 5.2 percent in the 12 months ending July after adjusting for seasonal variations, according to the Commerce Department figures.

Private homebuilding outlays increased 0.6 percent to the highest level since September 2008. The gain included a 0.8 percent increase in home improvement from June.

Non-residential building climbed 1.3 percent, reflecting a jump in factory construction.

Government Projects

Outlays (CNSTTMOM) on public projects dropped 0.3 percent, the report said. Federal spending increased 1.1 percent, the biggest gain since October, while state and local declined 0.4 percent.

Construction helped the world’s largest economy pick up steam in the second quarter. Gross domestic product increased at a more-than-expected 2.5 percent annualized rate after a 1.1 percent gain in the first three months of the year, Commerce Department figures showed earlier this week.

Residential construction increased at a 12.9 percent annualized rate, the report showed.

Corporate spending grew at a 9.9 percent annualized rate, exceeding the 9 percent gain previously reported, amid bigger increases in commercial construction. Government spending fell at a 0.9 percent annualized rate.

Across-the-board cuts in federal government spending has spurred companies such as Oshkosh Corp. (OSK:US) to ensure their sources of revenue are diversified. Oshkosh, which designs and manufactures specialty trucks and other vehicles, reported sales and earnings that topped the average estimate from analysts during the third quarter ended June.

Diversifying Revenue

“With the recovery in both residential construction and the expected follow-on recovery in non-residential construction, that will allow us to have a greater percentage of revenues that are outside of government spending,” Patrick Davidson, vice president of investor relations, said at a presentation at the Three Part Advisors LLC Midwest IDEAS conference on Aug. 27. While progress in housing starts has been uneven, the improvement over the past year “is a very positive sign, not only for our telehandler business but also for our concrete mixer business,” he said.

Work began on 2.2 percent fewer single-family homes in July, taking them to a 591,000 annualized rate, the least since November, according to Commerce Department data. Total housing starts climbed to an 896,000 pace, propelled by a rebound in the multifamily category, which can be volatile.

Purchases of new U.S. homes plunged 13.4 percent in July, the most in more than three years. A jump in borrowing costs over the past four months may be prompting buyers to hold back. The average rate on a 30-year, fixed-rate purchase loan was 4.51 percent in the week ended Aug. 29, close to a two-year high, according to McLean, Virginia-based Freddie Mac.

To contact the reporter on this story: Victoria Stilwell in Washington at vstilwell1@bloomberg.net

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


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Companies Mentioned

  • OSK
    (Oshkosh Corp)
    • $48.54 USD
    • -0.10
    • -0.21%
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