Construction Spending in U.S. Rose Less Than Forecast in March

Construction spending in the U.S. grew less than forecast in March as state and local government agencies continued to pull back.

The 0.1 percent increase followed a 1.4 percent decline in February that was larger than previously estimated, the Commerce Department reported today in Washington. The median estimate of 47 economists surveyed by Bloomberg News called for a 0.5 percent increase.

Cash-strapped state and local governments will probably continue to rein in spending on construction projects, preventing the industry from making a broad-based recovery. At the same time, the lowest rental vacancies in a decade will probably continue to spur demand for apartments, leading to gains in residential real estate.

“There’s been some clearer signs that apartment construction has started to pick up,” Ryan Wang, an economist at HSBC Securities USA Inc., said before today’s report.

Estimates in the Bloomberg survey ranged from a decline of 0.8 percent to a 1 percent gain.

Construction spending increased 6.7 percent in the 12 months ended in March, before adjusting for seasonal variations.

Private construction spending in March rose 0.7 percent from the prior month, the best performance so far this year.

Private residential outlays were up 0.7 in March, the most since November, the report showed. Private non-residential projects also increased 0.7 percent.

Home Construction

Construction of single-family houses paced the advance in private residential construction last month as multifamily building cooled. Nonetheless, apartment building was up 24 percent from March 2011, outpacing the 8.4 percent gain in houses.

Spending on public construction dropped 1.1 percent from the prior month, the fourth consecutive decrease. State and local construction shrank 1.6 percent, bringing it to the lowest level since November 2006. Federal agencies boosted construction spending by 3.8 percent.

Gains in residential real estate, which includes apartment buildings, have started to help the world’s largest economy grow. Housing contributed 0.4 percentage point to gross domestic product in the first three months of the year after adding 0.25 point in the fourth quarter of 2011, according to figures from the Commerce Department. It was its biggest back-to-back contribution since mid 2005.

A more stable market may trigger improvement elsewhere. Every housing start creates three jobs, Mike Thaman, chief executive officer of Owens Corning Inc. (OC), said in an April 25 phone interview.

“The other thing about housing is it’s inherently domestic. It’s going to help local economies,” Thaman said.

The economy grew at a 2.2 percent annual rate from January through March, helped by the biggest gain in consumer spending in more than a year, a Commerce Department report showed last week. A decline in commercial construction was among areas limiting the advance.

To contact the reporter on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net

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

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