Construction Spending in U.S. Unexpectedly Fell in January

Construction spending in the U.S. unexpectedly fell in January as commercial and government projects slowed, a sign the building industry will take time to rebound.

The 0.1 percent drop, the first decline since July, followed a revised 1.4 percent gain in December that was lower than previously estimated, Commerce Department figures showed today in Washington. The median estimate of economists surveyed by Bloomberg News called for a 1 percent increase.

Foreclosed properties returning to the market will keep putting pressure on prices and discouraging builders from taking on new projects. Along with the lack of a strong rebound in housing, budget constraints at government agencies also will weigh on the construction industry.

“We’re in a very weak period still for housing,” Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida, said before the report. “There’s a substantial overhang of foreclosed homes. It’s going to be a very long time before we see any real strength in this sector.”

Estimates in the Bloomberg survey ranged from gains of 0.3 percent to 2.5 percent, following the initially reported 1.5 percent increase for December.

Construction Spending

Construction spending increased 8 percent in the 12 months ended in January, before adjusting for seasonal variations.

January private construction spending was unchanged from the prior month.

Private residential outlays increased 1.8 percent, including a 1.3 percent rise in home improvement. Private non-residential projects fell 1.5 percent, hurt by hotels, factories and religious institutions.

Spending on public construction fell 0.2 percent from the prior month. Federal construction spending declined 5.5 percent, while state and local construction gained 0.4 percent.

The fourth-warmest January on record may have boosted construction. The average temperature was 36.3 degrees Fahrenheit (2.39 degrees Celsius), 5.5 degrees above the 1901-2000 long-term average, according to the National Oceanic and Atmospheric Administration.

Housing starts rose 1.5 percent to a 699,000 annual rate in January from December’s 689,000 pace that was stronger than previously reported, Commerce Department figures showed on Feb 16.

Exceeded Forecasts

Purchases of new homes exceeded forecasts in January after climbing in December to a one-year high, and sales of previously owned houses rose to the highest level since May 2010, recent reports showed.

The housing market has “improved somewhat in most districts” with “several reports of increased home sales and some reports of increased construction,” the Fed said yesterday in its Beige Book business survey. It also said the economy expanded at a “modest to moderate pace” in January.

Three straight months of job gains, unemployment at a three- year low and rising consumer confidence may encourage households to refurbish their houses, helping construction.

Atlanta-based Home Depot Inc. (HD), the largest U.S. home- improvement retailer, reported fourth-quarter profit that exceeded analysts’ estimates.

“Certainly we think that as the economy continues to improve, hopefully as unemployment improves, that people will continue to want to do small and large projects in their home,” Chief Executive Officer Frank Blake said on an analyst conference call on Feb. 21.

Construction funded by government agencies is likely to stay under pressure. Estimates show that 29 states have faced budget shortfalls for the next fiscal year totaling $47 billion, indicating a long and uncertain recovery, according to a Center on Budget and Policy Priorities report released this week.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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

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