Construction Spending Barely Budges in February

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Construction Spending
Elise Amendola/AP
By MARTIN CRUTSINGER

WASHINGTON -- U.S. construction spending posted a slight increase in February as a rebound in construction of hotels and other nonresidential buildings offset a decline in housing. But housing construction fell as activity was still being depressed by the harsh winter.

Construction spending increased a scant 0.1 percent in February after a 0.2 percent drop in January, the Commerce Department reported Tuesday. The increase left construction at a seasonally adjusted annual rate of $945.7 billion, 8.7 percent above the level of a year ago.

The small increase in February came from a 1.2 percent advance in nonresidential projects, led by a 3.5 percent rise in construction of hotels and motels. Spending on government projects edged up 0.1 percent, helped by a big gain at the federal level. Residential construction dropped 0.8 percent, the biggest setback since July.

The increase in nonresidential construction was a rebound from January when spending in this area had fallen 1 percent. %VIRTUAL-article-sponsoredlinks%The February increase was helped by gains in spending on construction of lodging establishments which offset weakness in office building and the category that includes shopping malls.

The 0.1 percent rise in public construction reflected a 5.8 percent rise in spending at the federal level which offset a 0.5 percent decline in spending on state and local government projects. Even with the small February advance, government construction spending is down 1 percent from a year ago government projects have been restrained by tight budgets.

The 0.8 percent decline in housing construction followed sizable gains in the previous three months and was expected to be a temporary drop. Housing is expected to continue being a source of strength for the economy in 2014. Economists say a strengthening economy will boost employment and the employment gains will provide the income gains needed to convince potential home buyers to take the plunge.

Most economists are looking for sales of new and existing homes to show improvement as the spring buying season gets into full swing. They expect pent-up demand to help sales following an unusually severe winter which depressed sales.

Housing, while still a long way from the boom of several years ago, has been recovering over the past two years.

One assumption underlying the optimism on housing: Even as the Federal Reserve keeps scaling backs its bond purchases, which were used to keep long-term rates low, mortgage rates will rise only gradually this year.

In her first major speech as leader of the Federal Reserve, Chair Janet Yellen delivered a strong statement on her concerns about a labor market she said was still too weak. Even though the Fed has been gradually trimming its bond purchases, Yellen said the central bank still needs to provide significant support to the economy.

She said that the extraordinary support the Fed is providing will be needed "for some time," a view she said was widely held by other Fed officials.

Her comments lifted spirits on Wall Street where investors had been worried that remarks Yellen had made last month following a Fed meeting might indicate that the central bank could start raising a key short-term interest rate sooner than expected.

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Construction Spending Barely Budges in February
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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