Construction Spending in U.S. Unexpectedly Decreased in August

Construction spending in the U.S. unexpectedly fell in August for a second month as declines in commercial and government projects overshadowed the strongest pace of home building in three years.

The 0.6 percent drop, the biggest decrease since July 2011, followed a revised 0.4 percent decline in July that was smaller than previously estimated, the Commerce Department reported today in Washington. The median estimate of 43 economists surveyed by Bloomberg called for a 0.5 percent rise.

Non-residential projects, which currently account for almost 70 percent of construction spending, are suffering from government budget constraints and concern about the looming fiscal cliff of tax increases and spending cuts set to take effect next year should lawmakers fail to act. That weakness is eclipsing gains in housing, where record-low borrowing costs have boosted demand at Toll Brothers Inc. (TOL) and other builders.

“Construction is not going to be able to lead the recovery,” Ryan Sweet, senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, said before today’s report. “We’re going to have to lean on other sources of growth.”

Estimates in the Bloomberg survey ranged from a drop of 0.2 percent to a gain of 1 percent, following an initially reported 0.9 percent decrease for July.

Construction spending increased 9 percent in the 12 months ended in August before adjustments for seasonal variations.

Private construction spending fell 0.5 percent from the prior month.

Private Construction

Homebuilding outlays climbed 0.9 percent to $273.5 billion, the most since January 2009. Private non-residential projects decreased by 1.7 percent, led by fewer power and communications plants.

Spending on public projects dropped 0.8 percent from the prior month. Federal construction increased 0.3 percent, while state and local agency projects declined 0.9 percent from the prior month.

The housing market has shown uneven improvement. Americans signed fewer contracts in August to purchase new homes. At the same time, the broader market for houses is improving, with the S&P/Case-Shiller index of prices increasing more than forecast in July from a year earlier.

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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