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Construction Spending in U.S. Increases on Private Building

June 3 (Bloomberg) -- Construction spending in the U.S. climbed in April, as private projects rose and public spending slumped.

Outlays increased 0.4 percent to a $860.8 billion annual rate, the Commerce Department reported today in Washington. The median forecast of 49 economists surveyed by Bloomberg called for a 0.9 percent rise. Private construction projects rose 1 percent in April from the month before, to the highest spending level since December 2012. Public projects fell by 1.2 percent, to the lowest spending level since October 2006, after slumping in the prior month by a revised 2.9 percent.

A pickup in the housing market may be helping to offset any drag created by across-the-board federal spending cuts known as sequestration that began in March and have been rolling out since then. Sales of new properties advanced 2.3 percent in April to an annualized pace of 454,000 homes, the second-fastest pace since July 2008, the Commerce Department said last month.

“Construction has been so beaten down for so long, I think there is strong pent-up demand,” Russell Price, senior economist at Ameriprise Financial Inc. in Detroit, said before the report. “Unless we get a jump in interest rates for some unforeseen reason, which I do not expect, I do think it is a solid path higher for the sector.”

Bloomberg Survey

Estimates in the Bloomberg survey ranged from a drop of 5.1 percent to a 1.7 percent gain. March’s reading was revised to a 0.8 percent drop from the initial estimate of a 1.7 percent decrease.

Construction spending rose 4.5 percent in the 12 months ended in April before adjusting for seasonal variations.

Housing outlays fell 0.1 percent to a $301.9 billion annualized pace. Private non-residential projects rose 2.2 percent.

Improvements in construction would help companies including Oshkosh Corp., which designs and manufactures specialty trucks and other vehicles. Chief Financial Officer David Sagehorn said the services the Oshkosh, Wisconsin-based company uses to monitor North American construction spending are projecting 9 percent to 12 percent annual growth in the U.S. between 2012 and 2015, and low to mid-single digit growth in Canada.

“Construction spending is projected to continue picking up from rock-bottom levels,” Sagehorn said in a May 29 presentation. “Our sales growth in this region over the last several years in the access equipment segment has been largely replacement demand-driven. With any significant uptick in non-residential construction spending, we do expect to see some fleet expansion.”

Construction changes may have played into first-quarter growth estimates released last week. Gross domestic product rose at a 2.4 percent annualized rate in the first quarter, revised from the 2.5 percent pace reported earlier, figures from the Commerce Department showed.

To contact the reporter on this story: Jeanna Smialek in Washington at jsmialek1@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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