Construction Spending in U.S. Rose for Third Consecutive Month in October

Construction spending in the U.S. rose in October for a third consecutive month on gains in housing and commercial projects like office buildings and power plants.

Building outlays increased 0.8 percent, Commerce Department figures showed today in Washington. The median estimate of 52 economists in a Bloomberg survey called for a 0.3 percent gain.

New activity in the housing market, driven by low interest rates and home improvement projects, is starting to tug the industry up from decade lows. Even so, overall weakness in residential construction alongside declines in government spending mean the industry will take a long time to strengthen.

“Construction will contribute positively to growth,” Aneta Markowska, a senior U.S. economist at Societe Generale in New York, said before the report. “The problem is that (home) construction right now is 2 percent of gross domestic product, so even if you get big percent increases year-on-year, the impact would be marginal.”

Estimates in the Bloomberg survey ranged from a drop of 0.7 percent to an increase of 1 percent. Spending in September increased by 0.2 percent, the same as previously estimated. The August reading was revised up to show a 2.2 percent gain from a previously estimated 1.6 percent increase.

Private construction spending climbed 2.3 percent in October from the prior month. Homebuilding outlays increased 3.4 percent, including a 6.7 percent gain in home improvement.

Government Projects

Spending on public construction dropped 1.8 percent, the report said. Federal construction outlays decreased 5 percent to $26.4 billion, the lowest level since May 2009.

In October, builders broke ground on more homes than forecast and construction permits climbed to the highest level since March 2010, evidence that housing may become less of a drag as the U.S. recovery enters its third year.

Housing starts were at a 628,000 annual rate that month, Commerce Department figures showed Nov. 17. Building permits, a proxy for future construction, increased 11 percent.

Homebuilder sentiment has began to turn up as well. The National Association of Home Builders/Wells Fargo sentiment index increased to 20 last month, the highest level since May 2010. Readings less than 50 mean more respondents said conditions were poor.

Part of that brightening sentiment may be due to a jump in construction of apartments and other multifamily dwellings as foreclosures turn more Americans into renters. At the same time, the single-family market has not joined the rebound. At 163,000, the number of new one-family homes for sale in October was the lowest on records going back to 1963.

‘Tough’ Environment

“We have a macroeconomic environment that is tough,” Jim Roberts, chief executive officer at Granite Construction Inc. (GVA), said during a Nov. 15 investor conference. “We are still seeing a very slow private sector market, both at the residential and commercial side. We do not expect that to change in the next 12 to 18 months. Until that private sector rebounds, you will not see a significant increase in the overall spending.”

Federal Reserve Vice Chairman Janet Yellen said this week there’s a “strong case” for more steps to be taken to remedy a “dysfunctional” U.S. housing market, she said.

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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