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Construction Spending in U.S. Rises, Led by Residential Projects

July 1 (Bloomberg) -- Construction spending in the U.S. climbed in May, led by the strongest expenditures on residential projects in more than four years.

Outlays grew by 0.5 percent to an $874.9 billion annualized rate, the Commerce Department reported today in Washington. The median forecast of 53 economists surveyed by Bloomberg called for a 0.6 percent rise. Spending on housing climbed to the highest level since October 2008.

A pickup in residential real estate is helping to offset weakness in non-residential construction, giving economic growth a lift. Public works also picked up in May, led by gains at the state and local level that indicate improving municipal budgets are making up with weakness at the federal level created by across-the-board budget cuts known as sequestration that began in March.

“You’re going to see a stronger trend as homebuilding continues to pick up,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida. “If we get much better job growth, it would help to support a longer-term trend of growth in construction.”

Estimates in the Bloomberg survey ranged from a drop of 0.1 percent to a 1.8 percent gain. April’s reading was revised to a 0.1 percent advance from the initial estimate of a 0.4 percent gain.

Today’s report contained revisions back to January 2011. The combined effects was to lift the level of spending in April from an $860.8 billion annual pace to $870.3 billion, or a 1.1 percent increase.

12-Month Gain

Construction spending increased 6.2 percent in the 12 months ended in May before adjusting for seasonal variations.

Housing outlays climbed 1.2 percent to a $322.3 billion annualized pace. Private non-residential projects dropped by 1.4 percent to the lowest level since February 2012.

Gauges of housing growth have been positive. Sales of new properties advanced in May to a 476,000 home annualized pace, the highest level in almost five years, the Commerce Department reported.

Improvements in spending driven by housing would help companies including 3M Co. The St. Paul, Minnesota-based maker of Scotch tape also sells home and construction products and is expected a pickup in business as homeowners become more active.

“We also have a very good construction, home improvement business which clearly will benefit and is benefiting from things when people are renovating their home,” David Meline, the company’s chief financial officer, said in a June 12 presentation. “Consumer business looks quite good for us.”

More broad-based gains in construction will help foster economic growth. Gross domestic product rose at a 1.8 percent annualized rate in the first quarter, with homebuilding accounting for 0.34 percentage point of the increase, figures from the Commerce Department showed last week. Business investment on structures, such as factories and office buildings, dropped, subtracting 0.26 percentage point.

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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