Spending on U.S. construction projects unexpectedly dropped in November, restrained by declines in non-residential building and public works.
Outlays fell 0.3 percent to $866 billion annual rate after increasing a less-than-previously estimated 0.7 percent in October, the Commerce Department reported today in Washington. The median forecast of 41 economists surveyed by Bloomberg called for a 0.6 percent increase. Housing climbed to the highest level in more than four years.
The residential real-estate market will probably continue to drive spending as record-low mortgage rates, an increasing population and dwindling inventory boost construction. At the same time, the damage from superstorm Sandy and government budget battles that raise concern about the outlook for growth may curb the rest of the industry.
“There’s good, solid momentum story in the residential sector,” said Julia Coronado, chief economist for North America at BNP Paribas in New York. “We now have a construction sector that’s a modest contributor to GDP rather than a drag. This is a very gradually healing story, not a boom story.”
Also today, the Institute for Supply Management’s factory index rose to 50.7 in December from 49.5 a month earlier, the Tempe, Arizona-based group said. Economists in a Bloomberg survey projected a reading of 50.5.
Stocks jumped, after the largest year-end rally for the Standard & Poor’s 500 Index since 1974, as lawmakers passed a bill averting spending cuts and tax increases threatening a recovery in the world’s biggest economy. The S&P 500 climbed 2 percent to 1,455.1 at 10:21 a.m. in New York.
Estimates in the Bloomberg survey ranged from little changed to a 1.5 percent gain. October was initially reported as a 1.4 percent advance.
Construction spending increased 9.2 percent in the 12 months ended in November before adjustments for seasonal variations, today’s report showed.
Private construction spending fell 0.2 percent from the prior month.
Homebuilding outlays increased 0.4 percent to a $295.3 billion annual rate, the most since November 2008. Private non-residential projects decreased by 0.7 percent, reflecting declines in the building of factories, power plants and educational facilities.
Residential real estate has gained momentum going into the end of 2012. Existing-home sales reached a three-year high in November, contributing to a lack of inventory that has boosted residential builders. New-home sales advanced 4.4 percent to a 377,000 annual pace in November, the highest level since April 2010, the Commerce Department reported last week.
At the same time, the threat of government spending cuts may lead some builders to delay or abandon projects. Spending on areas such as higher education is slowing, said Dave Myers, president for building efficiency at Johnson Controls Inc., which supplies building control systems and energy management.
“For 2013, we expect a flat market here in North America. Within that, we are seeing spending declines that are projected to be lower in institutional markets” including higher education, Myers said on a Dec. 19 call with investors. “We are seeing a slightly positive outlook for commercial activities. It’s been the first time in a long time we’ll see slight increases in the year and we are seeing, for the first time in a long time, some positive signs about growth in the residential market and well.”
Spending on public projects declined 0.4 percent from the prior month, today’s report showed. Federal construction slumped 5.5 percent after advancing 9.7 percent in October. State and local agency projects rose 0.1 percent from the prior month.