Construction Spending in U.S. Climbs for Third Straight Month

Construction spending in the U.S. rose in June for a third consecutive month, led by a gain in nonresidential building, including factories, communications plants and commercial structures.

The 0.2 percent increase followed a revised 0.3 percent gain in May that was previously reported as a drop, Commerce Department figures showed today in Washington. The median estimate of economists in a Bloomberg News survey projected a 0.1 percent increase.

Lower interest rates, easier lending rules and a drop in raw-material costs may keep stimulating a rebound in commercial projects that will help underpin business investment, one of the few areas of the economy that contributed to growth last quarter. At the same time, decreases in government spending and a stagnant housing market probably mean a broad-based rebound in the industry will fail to take hold.

“The fiscal situation continues to contract state and local government budgets,” Sean Incremona, a senior economist at 4Cast Inc. in New York, said before the report. “Falling commodity prices could be helping the construction sector.”

Estimates of the 49 economists surveyed ranged from a decrease of 0.5 percent to a gain of 0.9 percent. The Commerce Department revised the May data from a previously reported 0.6 percent drop. April figures were also updated to show an increase rather than a decrease.

Construction spending fell 4.7 percent in the 12 months ended in June.

Private construction spending rose 0.8 percent in June, a third consecutive gain. Homebuilding outlays decreased 0.3 percent, which included a 0.5 percent drop in home improvement, according to Bloomberg calculations based on the data.

Housing Starts

Housing starts in the U.S. rose 15 percent in June, led by a 30 percent increase in multifamily construction, the Commerce Department reported July 19. Building permits, a sign of future construction, also increased.

Falling home prices are hurting consumer confidence and demand for real estate. The S&P/Case-Shiller index of property values in 20 cities fell 4.5 percent in May from a year earlier, the biggest 12-month drop since November 2009, the group reported last week.

Lender delays in processing home-loan defaults, while crimping current distressed transactions, will push as many as 1 million U.S. foreclosures from this year into 2012 or beyond, casting an “ominous shadow” on the housing market, RealtyTrac Inc., a housing data provider, said last month. A clogged foreclosure pipeline may prevent real estate prices from finding a bottom.

Builder Loss

PulteGroup Inc., the largest U.S. homebuilder by revenue, last week reported a worse-than-expected second-quarter loss as sales fell amid slumping demand for new houses.

“The industry is moving along a cyclical bottom that is proving to be fairly stable,” Chief Executive Officer Richard Dugas said in a teleconference on July 28. “Simply put, we need more jobs and better consumer confidence before a meaningful recovery can occur.”

Private non-residential projects increased 1.8 percent, the most since March. Manufacturing and communications projects climbed 4 percent, while outlays for commercial building rose 3.1 percent, today’s report showed.

Spending on public construction dropped 0.7 percent in June from the prior month as state and local government projects declined 0.6 percent. Federal construction spending fell 2.2 percent.

“For six districts, activity in the nonresidential real estate market has improved slightly for specific submarkets, although conditions generally remained weak across all twelve districts,” the Federal Reserve said July 27 in its Beige Book survey of regional U.S. economies since early June.

Government Spending

The battle over the budget may be another hurdle for the industry. Congressional leaders, leaving no extra time before a default threatened for tomorrow, are racing to push through a compromise sealed with President Barack Obama last night to raise the U.S. debt limit slash government spending.

The House plans votes today and the Senate may follow suit to consider the agreement reached during a weekend of negotiations that capped a months-long struggle between Obama and Republicans over raising the $14.3 trillion debt ceiling.

Today’s data will figure into the revisions to second- quarter gross domestic product that will be issued later this month. The economy grew at a 1.3 percent annual pace from April through June after expanding at a 0.4 percent rate in the first three months of the year. A gain in commercial construction added 0.2 percentage point to growth and residential building contributed 0.1 point.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.