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Construction Spending in U.S. Unexpectedly Climbed in October

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Dec. 1 (Bloomberg) -- Construction spending in the U.S. unexpectedly rose in October, lifted by the biggest gain in residential projects in six months.

The 0.7 percent increase matched the previous month’s gain and brought spending to $802.3 billion, Commerce Department figures showed today in Washington. The median estimate of economists in a Bloomberg survey called for a 0.3 percent drop.

Non-residential construction is still getting some help from ongoing projects such as new roads and bridges using funds available as part of the federal stimulus effort. Homebuilding is likely to face more hurdles as sales and prices plunged following the end of a tax credit for buyers.

“Projects that form part of the fiscal stimulus have generated increases in public construction spending,” Paul Dales, a U.S. economist at Capital Economics Ltd. in Toronto, said before the report. Even so, “residential and commercial real estate investment is unlikely to contribute to GDP growth on a sustained basis for some time yet.”

The median forecast was based on 53 projections in a Bloomberg News survey. Estimates ranged from a drop of 1 percent to an increase of 1.2 percent. September’s gain was revised up from a previously reported 0.5 percent increase.

Construction spending decreased 9.3 percent in the 12 months ended in October.

Private construction spending advanced 0.8 percent. Homebuilding outlays increased 2.5 percent, while private non-residential projects fell 0.7 percent, led by a plunge in factory construction.

Government Spending

Spending on public construction rose 0.4 percent from the prior month. Federal spending increased 0.9 percent to $33 billion, the highest level since records began in 1993.

Lower prices and borrowing costs near a record low have failed to prevent a slump in home sales since July, the month after homebuyers were originally required to close deals in order to get the tax incentive of as much as $8,000. Purchases of new houses and previously-owned properties both fell in October, reports showed last month.

Builders are pulling back. Housing starts in October fell to an annual rate that was the slowest since a record low reached in April 2009, a Commerce Department report showed on Nov. 17. Permits, a sign of future activity, rose, signaling home construction may not fall much further in coming months.

D.R. Horton Inc., the second-largest U.S. homebuilder by revenue, expects 2011 to be “challenging” for the industry, Chief Executive Officer Donald Tomnitz said on a Nov. 12 earnings conference call. Beazer Homes USA Inc., an Atlanta-based builder of homes for first-time buyers, also is cautious.

Unemployment, Foreclosures

“Sustained high unemployment levels and the overhang of foreclosures make it very difficult to predict when and to what extent the housing market will recover,” Ian McCarthy, chief executive officer of Beazer, said on a conference call with analysts on Nov. 5.

Government agencies are under pressure to cut spending. New Jersey Governor Chris Christie stopped construction of a Hudson River rail tunnel he said taxpayers couldn’t afford. He canceled the $9.8 billion tunnel, the country’s largest federally supported infrastructure project, on Oct. 27. New Jersey already faces a $10.5 billion budget deficit next year.

To contact the reporter on this story: Shobhana Chandra in Washington at

To contact the editor responsible for this story: Christopher Wellisz at

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