Construction Spending Posts Gain

Construction Spending Posts Gain WASHINGTON, DC - Construction spending rose 0.8 percent in April, defying economists' forecasts for a decline. The unexpected gain — the most since August — marked the second straight month that builders boosted spending on construction projects around the country, the Commerce Department reported Monday. Economists were bracing for a 1.2 percent drop in construction spending for April. Before March's uptick, construction spending had fallen for five straight months.

In an encouraging note, private builders increased spending on housing projects by 0.7 percent, contributing to the overall improvement in April. It marked the first time since August that private home builders boosted such spending. At that time, they increased it 5.5 percent.

Private spending on all other construction projects other than residential ones went up a strong 1.8 percent in April, following a 2.6 percent gain in March. Builders increased spending in April on projects including hotels and motels, factories, power plants and health care facilities. That more than offset reductions in spending on office buildings, amusement and recreation projects and on other projects.

Spending by the government, however, dipped 0.6 percent in April. That reflected spending cuts on schools, hospitals and other health-care buildings, and sewer and water-supply projects.

Ken Simonson, chief economist of the Associated General Contractors of America, said the news isn't as rosy as the numbers may indicate.

"Buried in the census website is the grim reality: new single-family home construction tumbled 6.7 percent in April and new multi-family construction slumped 2.6 percent," Simonson said in a statement. "The total rose only because of a third residential component that the Census Bureau includes in the total but declines to show separately: improvements to existing single- and multi-unit buildings, which leaped 8.9 percent for the month."

On the nonresidential construction side, public educational construction was down 1.8 percent, while highway construction advanced .9 percent, Simonson noted.

Refinery construction was up, but that's "likely to tail off in the coming months as current projects wind down," Simonson commented. "And it is important to note that no new comparable projects have been announced for a year or more."

"While private construction is likely to continue declining, publicly funded construction, especially in the highway sector, is almost certain to improve in the near term thanks to the stimulus. Despite the stimulus, however, severe shortfalls in federal and state highway trust funds could trigger a downturn in highway spending later this summer unless Congress and the Obama administration quickly agree on how to maintain current investment levels."

A collapse in the housing market, a credit crunch and a financial crisis helped push the U.S. into a recession.

Federal Reserve Chairman Ben Bernanke has said he hopes the recession, which started in December 2007 and is now the longest since World War II, will end later this year.

Builders have been hard hit. They slashed spending on residential projects in the first quarter at an annualized rate of 38.7 percent, the most since the spring of 1980. Spending on commercial projects was slashed, too.

Economists are hopeful that cutbacks by business in the current April-to-June quarter won't be as deep as they have been. If they are right, the economy shouldn't shrink nearly as much during this quarter as it had in the last six months, analysts say.
Source: Bloomberg.com

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