It's Payback Time For Construction

Construction led growth at the start of the year, but don't expect a repeat performance in the second quarter.

Real value added by the construction industry — a measure of how much that sector contributed to gross domestic product — climbed at a 9 percent annual rate in the first quarter, marking its eighth straight quarterly increase, Commerce Department figures showed Thursday. The industry helped prop up what proved to be lackluster growth in the first quarter, with construction contributing 0.36 percentage points of the 1.1 percent pace of GDP growth — a full third.

That performance likely had to do with unseasonably warm weather that allowed builders to keep working through the winter months, said Michelle Meyer, head of U.S. economics at Bank of America Corp. in New York. She and other economists are expecting to see some payback in the residential investment numbers when the GDP figures are released next week.

"The winter months allowed for stronger construction spending," Meyer said. "If you have a certain amount of construction that you need to do to satisfy demand, and you did more of that in the winter months than you otherwise would have, it means you have less to contribute in the spring."

Ted Wieseman, an economist at Morgan Stanley, sees residential investment falling 6 percent in the second quarter, reflecting "payback from weather-boosted Q1 construction activity," he wrote in a July 19 note to clients. That would follow a 15.6 percent gain in the first quarter "during the unusually warm winter, which also boosted business construction investment and state and local government construction."

Smoothing through the seasonal quirks, the picture for housing is still solid, Meyer said. The industry is supported by a still-expanding labor market, even if job creation is slowing, low interest rates and rising household formation, she said.