Construction Spending in U.S. Unexpectedly Dropped in July

Construction spending in the U.S. unexpectedly fell in July for the first time in four months as a plunge in home-improvement outlays overshadowed gains in homebuilding.

The 0.9 percent drop was the biggest decrease in a year and followed a 0.4 percent gain in June, Commerce Department figures showed today in Washington. The median estimate of 47 economists surveyed by Bloomberg called for a 0.4 percent rise. Outlays on remodeling projects, which are volatile, slumped 5.5 percent.

The report also showed public spending declined in July as budget constraints at all levels of government agencies curbed new building initiatives. Commercial projects also took a breather as looming fiscal policy changes deter developers, while single- and multifamily home expenditures advanced as record-low borrowing costs boost sales.

“The recovery will take place in fits and starts,” Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, said before the report. At the same time, “the improvement should continue this year. There is pent-up demand for homes.”

Estimates in the Bloomberg survey ranged from a drop of 0.3 percent to a gain of 1 percent. Construction spending increased 9.3 percent in the 12 months ended in July, before adjusting for seasonal variations.

Private construction spending declined 1.2 percent from the prior month.

Housing Gains

Single-family homebuilding outlays climbed 1.5 percent, and multifamily advanced 2.8 percent. Private non-residential projects decreased spending by 0.9 percent for a second month, led by a decline in factories and power plants.

Recent reports indicate a pickup in demand. Purchases of new homes rose more than projected in July to match a two-year high annual pace, Commerce Department data show. Previously- owned house sales rebounded from an eight-month low, the National Association of Realtors reported.

Toll Brothers Inc. (TOL), the largest U.S. luxury-home builder, reported a better-than-estimated profit and an increase in revenue for its third quarter ended July 31.

“The housing recovery is being driven by pent-up demand, very low interest rates and attractively priced homes,” Douglas Yearley Jr., chief executive officer of the Horsham, Pennsylvania-based company, said on an Aug. 22 conference call with analysts. “With an industry-wide shortage of inventory in many markets, we are enjoying some pricing power.”

Spending on public construction fell 0.4 percent from the prior month, today’s report showed. Federal construction spending declined 1.3 percent, while state and local agencies cut outlays by 0.3 percent.

Some companies are planning new construction. MGM Resorts International, the largest casino operator on the Las Vegas Strip, in August said it wants to develop an $800 million gambling, hotel and entertainment project in Springfield, Massachusetts. The project, if approved, would be located on about 10 acres of land heavily damaged by a June 2011 tornado, the Las Vegas-based company said.

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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