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Construction Spending in U.S. Climbs to More Than Two-Year High

Construction spending in the U.S. increased in May to the highest level in more than two years, held up by improvement in the housing market.

The 0.9 percent climb followed a 0.6 percent increase in April that was bigger than previously estimated, Commerce Department figures showed today in Washington. The median estimate of economists surveyed by Bloomberg News called for a 0.2 percent increase. The value of all projects rose to $830 billion at an annual rate, the most since December 2009.

A sustained housing recovery is supporting the construction sector even as public spending weakens. Concern over the European debt crisis and domestic fiscal uncertainty may also limit business confidence, restraining commercial projects.

“We’re definitely seeing a rebound in home building, absolutely no question about that,” Gus Faucher, a senior economist at PNC Financial Services Group Inc. in Philadelphia, said before the report. “Construction is going to be a positive for growth, primarily on the residential side this year, and maybe more on the commercial side in 2013.”

Estimates from 46 economists in the Bloomberg survey ranged from an increase of 1 percent to a decline of 0.8 percent, following an initially reported 0.3 percent increase for April.

Construction spending increased 7 percent in the 12 months ended in May, after adjusting for seasonal variations.

Private construction spending climbed 1.6 percent in May from the prior month.

Residential Construction

Homebuilding outlays increased 3 percent, the most since October, including a 3.6 percent gain in home improvement. Private non-residential projects spending advanced 0.4 percent.

Spending on public construction dropped 0.4 percent in May from the prior month, led by a 1 percent decline for state and local government agencies. The value of such projects fell to $242.6 billion, the lowest since November 2006.

Federal construction spending increased 5.6 percent, the biggest gain so far this year.

Housing demand has shown a gradual recovery. Purchases of new houses rose 7.6 percent in May to reach the highest level since April 2010, while those of existing homes dropped 1.5 percent, figures showed last month.

Housing starts fell 4.8 percent to a 708,000 annual pace in May from a revised 744,000 rate in the prior month, paced by a decline for multifamily units, according to Commerce Department figures released on June 19.

‘Pent-Up Demand’

“We continue to see slowness for larger-ticket repair, remodel activity, but our sense is that if we look out a little bit, there ought to be some pent-up demand,” Tim Wadhams, chief executive officer of Taylor, Michigan-based Masco Corp., said at a June 13 conference.

“We’re encouraged by what we see, but certainly anticipating a much better year than we had last year,” said Wadhams, whose company makes home-improvement and building products.

Borrowing costs remain attractive. The average rate for a 30-year fixed mortgage held at 3.66 percent in the week ended June 28, the lowest in Freddie Mac records dating to 1971. The average 15-year rate dropped to 2.94 percent, also a record, from 2.95 percent, the McLean, Virginia-based mortgage-finance company said in a statement.

Construction funded by government agencies is likely to continue to face headwinds. Communities and states across the nation endure soaring costs for pensions and retiree health benefits as sales and property-tax revenue have fallen from the longest recession since the 1930s.

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