Construction Spending Edges Up on Public Projects

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September's unexpected 0.5% increase in construction spending was tempered somewhat by the fact that August's tally was revised downward, dropping considerably from the initially estimated 0.4% spending gain to a 0.2% decrease.

A Bloomberg survey had expected construction spending to fall 0.5% in September. Construction spending fell 2.6% in July, and was essentially unchanged in June. On a year-over-year basis, construction spending totaled a seasonally adjusted annual rate of $801.7 billion, or down 10.4% from a year ago, in September 2009. That's a substantial improvement from the 11.5% year-over-year decline recorded in August.

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Another noticeable improvement in the September construction report concerned private construction, which was essentially unchanged at $482.0 billion -- its best one-month performance since it rose in April. Private, residential construction, which includes single-family homes, rose 1.8% to an annual rate of $227.7 billion. However, private, non-residential construction, which includes shopping malls and office buildings, declined 1.6% to a rate of $254.3 billion.

Meanwhile, public construction spending, which includes fiscal stimulus infrastructure projects, rose 1.3% in September to a seasonally adjusted annual rate of $319.7 billion.

Economists follow the U.S. Commerce Department's construction spending report because it provides the most comprehensive survey of both public sector and private sector (residential, commercial) building activity.

September Construction Report: Mixed Results

The September construction report was a qualified, positive data point for the sector and for the U.S. economy. The fact that private, residential construction rose is a cause for minor celebration. The private, residential component includes single-family homes, and activity in the sector declined sharply following the end of the original home buyer credit in April. The minor uptick in home building in September suggests that home builders are taking on selected, new projects -- but you can rest assured that most of these single-family homes have already been paid for by buyers – not built "on speculation" or for buyers not yet secured. Still, if the uptrend continues, it would be a ray of light for the hard-hit home-building sector.

Meanwhile, the decline in private, non-residential construction, also called commercial construction, was not surprising. It's typical in a U.S. economy that features above-average vacancy rates in the nation's indoor malls and outdoor shopping centers. Further, if consumer spending does not trend back to pre-financial crisis levels, that will likely lengthen the recovery time for commercial construction.

In light of the revised decline in August construction spending, the picture is one of a tepid U.S. building sector -- something one would expect with a U.S. economy that's growing at a 2% rate, or well below its potential.
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