Construction Spending Drops for 2nd Straight Month

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Keith Srakocic/The Associated PressSpending on home construction rebounded slightly in September after four months of declines.
By Martin Crutsinger

U.S. construction spending fell for a second straight month in September as a slight rebound in housing was offset by further declines in nonresidential building and in government projects. Construction spending dropped 0.4 percent in September compared to August when spending fell 0.5 percent, the Commerce Department reported Monday.

After four straight monthly declines, housing construction edged up 0.4 percent in September but nonresidential building fell 0.6 percent with weakness in construction of hospitals, power plants and factories. Government construction was also down, falling 1.3 percent as spending on projects at the%VIRTUAL-pullquote-The expectation is that further gains in construction will help support growth this quarter and into next year.% federal and state and local levels declined.

The overall declines in the past two months were disappointing but economists say the weakness will be temporary. They are looking for construction activity to support economic growth in coming months. The September drop pushed construction spending down to $950.9 billion at a seasonally adjusted annual rate, still a modest 2.9 percent higher than the level a year ago.

The increase in housing reflected a solid 1.1 percent gain in construction of single-family homes which helped offset a 1 percent drop in the smaller apartment sector. Residential construction, which had fallen for four straight months, now stands at a seasonally adjusted annual rate of $349.1 billion, a slight 0.7 percent higher than a year ago.

The decline in government activity reflected a 0.3 percent drop in spending at the federal level and a 1.4 percent decline in spending at the state and local levels. Government construction activity has been squeezed by tight budgets reflecting the severe 2007-2009 recession and the weak economic rebound since that time.

The overall economy grew at an annual rate of 3.5 percent in the July-September quarter, a solid performance but slower than the 4.2 percent growth spurt in the April-June period.

Residential construction expanded at a 1.8 percent rate in the third quarter, a slower pace than the 8.8 percent rate of gain in the spring. Business spending on structure also slowed to growth at a 3.8 percent rate, down from a 12.6 percent jump in the spring.

The expectation is that further gains in construction will help support growth this quarter and into next year. Many economists are looking for the economy to grow at a 3 percent rate in the final three months of this year and average 3 percent in 2015 as well. If that forecast comes true, it would mean that 2015 will be the strongest year for economic activity since the economy grew 3.3 percent in 2005, two years before the start of the Great Recession.
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